International Capital Markets

Presented by: Viral Dawda (5) Ruchi Goel (9) Devang Madhani (22) Pratik Mistry (28) Piyush Shah (48) Mayank Shah (60)
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Index
Angel Capital, VC and PE

Primary Markets
Secondary Markets

ADR/GDR
Exchange Ratios FDI/FII

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Angel Capital
An angel investor or angel (also known as a business angel or informal investor) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. An individual who provides capital to one or more startup companies. The individual is usually affluent or has a personal stake in the success of the venture. Such investments are characterized by high levels of risk and a potentially large return on investment.

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Venture Capital
Money provided by investors to startup firms and small businesses with perceived long-term growth potential. Typically entails high risk for the Investor but has the potential of above-average returns. Most venture capital comes from a group of wealthy investors, investment banks and other financial institutions that pool such investments or partnerships. Venture capitalists usually get a say in company decisions, in addition to a portion of the equity.

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Private Equity
Equity securities of companies that are not listed on a public exchange. Private equity investments are primarily made by private equity firms, venture capital firms, or angel investors, each with their own set of goals, preferences, and investment strategies, yet each providing working capital to a target company to nurture expansion, new product development, or restructuring of the companys operations, management, or ownership.
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Difference b/w Angel, VC & PE

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Exit Strategies
Angel Investor VC and PE

Buyout by a competitor
Going Public Investor Buyout

Mergers & Acquisition IPO Acquisition by another company Re purchase by investee company Purchase of VC share by third company

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Primary MarketsTaking a Company Public

Exchange Qualifications
NYSE
NASDAQ

Picking the right IPO Strategy Market Consideration

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Primary MarketsIPO Process

Put the right management team in place Upgrade financial reporting systems Select Investment Bankers Draft the Prospectus
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Primary MarketsIPO Process

File the registration statement and begin review process
Organize roadshow Price the IPO Complete the offering and begin life as public company
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Indexes
Indexes were initially created to give a sense of how a

particular security market performed on a given day . With the development in the financial theory their uses in investment management have expanded significantly.
Uses Gauges of the Market sentiment Proxies for measuring and modelling returns , systematic risk and risk adjusted performances Proxies for Asset class Benchmark for actively managed portfolio
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Index Weighting
Price Weighted Equal Weighted Market Capitalization Weighted Float Adjusted Market Capitalization Weighting

Fundamental Weighting

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Price Weighted
Security A B C D E
Security A B C D E

Shares In Index
1 1 1 1 1 Shares In Index 1 1 1 1 1

Price
55 22 8 14 6 Price 50 25 12.5 10 4

Weight (BOP)
52.38% 20.95% 7.62% 13.33% 5.71% Weight (BOP) 49.26% 24.63% 12.32% 9.85% 3.94%
21.00 20.30
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INDEX VALUE (BOP) INDEX VALUE (BOP)

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Equal Weighted
Security A B C D E Security A B C D E Shares In Index 40 80 160 200 500 Shares In Index Price Price 50 25 12.5 10 4 Value Value Weight Weight (BOP) 2000 20.00% 52.38% 2000 20.00% 20.95% 2000 20.00% 7.62% 2000 20.00% 13.33% 2000 20.00% 5.71% Weight Weight (EOP) 2200 19.93% 52.38% 1760 15.94% 20.95% 1280 11.59% 7.62% 2800 25.36% 13.33% 3000 27.17% 5.71%

40 80 160 200 500

55 22 8 14 6

INDEX VALUE
INDEX VALUE
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1000
1104
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Market Capitalization Weighted

Security A B C D E Shares In Index Price 3000 10000 5000 8000 7000 Value 50 25 12.5 10 4 150000 250000 62500 80000 28000 Weight 26.29% 43.82% 10.96% 14.02% 4.91%

Security A B C D E

Shares In Index Price 3000 10000 5000 8000 7000

Value
55 22 8 14 6 165000 220000 40000 112000 42000

Weight
28.50% 22.16% 5.17% 15.26% 6.75%
1000 1014.899
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INDEX VALUE
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INDEX VALUE

Float Adjusted Market Capitalization Weighting

Security A B C D E Shares In Index 3000 10000 5000 8000 7000 Shares In Float 100.00% 70.00% 90.00% 25.00% 80.00% 3000 7000 4500 2000 5600 Price 50 25 12.5 10 4 Value 150000 175000 56250 20000 22400 Weight 35.41% 41.31% 13.28% 4.72% 5.29%

Security Shares In Index Shares In Float A 3000 100.00% B 10000 70.00% C 5000 90.00% D 8000 25.00% E 7000 80.00%

Price 3000 7000 4500 2000 5600

Value Weight 55 165000 39.61% 22 154000 35.35% 8 36000 8.40% 14 28000 6.60% 6 33600 7.96%
1000

INDEX VALUE K.J.Somaiya Institute of Management Studies and Research

INDEX VALUE

983.3589

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Comparison
Type Index Value Before Index Value After Return Price 20.3 21 3.45% Equally 1000 1104 10.40% Mkt Cap 1000 1014.89 1.49% Float Adjusted Market Cap 1000 983.359 -1.66%

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Different Indexes around the globe

INDEXES Represents No Of Securities
30 225

Weighting Method Country

Price Weighted Modified Price Weighted USA Japan India India Tokyo USA

Dow Jones US Blue Chip Companies Nikkei Stock Exchange Japanese Bluechip Companies NSE BSE TOPIX Nasdaq Indian Blue chip Companies Indian Blue chip Companies Companies Listed on the Tokyo Stock Exchange first Section Domestic And International Stocks Listed 30 largest companies base on book value and market capitalization 40 most significant values among the 100 highest market caps on the Paris Bourse representative stock market index of South Korea

50 Market Capitalization Weighted Free Float Market capitalization 30 Weighted Varies Float Adjusted Market Cap

100 Market Capitalization Weighted

DAX

Free Float Market capitalization 30 Weighted Germany Free Float Market capitalization 40 Weighted 200 Market Capitalization Weighted

CAC Kospi

France Korea 18

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Stock Exchange
A stock exchange is a form of exchange which provides services for stock brokers and traders to trade stocks , bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds
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National Stock Exchange

Pre-open session (Regular)
Order entry & modification Open: 09:00 - 9.08 hrs with random closure in last one minute. Pre-open order matching starts

immediately after close of pre-open order entry.

Regular trading session
Normal Market Open: 09:15 hrs Normal Market Close: 15:30 hrs

The Closing Session is held between 15.40 hrs and 16.00 hrs.

T+2 STANDARD SETTLEMENT PERIOD

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Shenzhen Stock Exchange(China)

Types of Securities Traded Shares Bonds Funds Warrants Name of Trading Systems (cash and derivatives) STS/4, screen-based STS/4, screen-based STS/4, screen-based STS/4, screen-based

Trading Hours
9:30 - 11:30 13:00 - 15:00 9:30 - 11:30 13:00 - 15:00 9:30 - 11:30 13:00 - 15:00 9:30 - 11:30 13:00 - 15:00

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Commissions on Transactions levied by Exchange

0.1475 % for A shares 0.301 % for B shares 0.0975 % for Funds 0.045 % for Warrants

Taxes on Dividends, Interests - 20% Short selling - Yes

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London Stock Exchange

Trade Reporting 07:15 - 07:50 Opening Auction 07:50 - 08:00 Continuous Trading 08:00 - 16:20 Closing Auction 16:30 - 16:35

Order Maintenance 16:35 - 17:00

Trade Reporting Only 17:00 - 17:15

T+3 STANDARD SETTLEMENT PERIOD

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Global Stock Exchanges

Rank 1 2 3 4 5 6 7 8 9 Economy United States Europe United States Europe Japan United Kingdom China Hong Kong Canada Brazil Australia Stock Exchange NYSE Euronext (US & Europe) NASDAQ OMX (US & North Europe) Tokyo Stock Exchange London Stock Exchange Headquarters New York City New York City Tokyo London Market Capitalization (USD Billions) 14,242 4,687 3,325 3,266 2,357 2,258 1,912 1,229 1,198 Trade Value (USD Billions) 20,161 13,552 3,972 2,837 3,658 1,447 1,542 931 1,197 24

Shanghai Stock Exchange Shanghai Hong Kong Stock Exchange Toronto Stock Exchange BM&F Bovespa Hong Kong Toronto So Paulo

Australian Securities Sydney Exchange K.J.Somaiya Institute of Management Studies and Research

Rank 10 11 12 13 14 15 16 17 18

Economy Germany Switzerland China Spain India South Korea India Russia South Africa

Stock Exchange Deutsche Brse SIX Swiss Exchange Shenzhen Stock Exchange BME Spanish Exchanges Bombay Stock Exchange Korea Exchange National Stock Exchange of India MICEX-RTS JSE Limited

Headquarters Frankfurt Zurich Shenzhen Madrid Mumbai Seoul Mumbai Moscow Johannesburg

Market Capitalization (USD Billions) 1,185 1,090 1,055 1,031 1,007 996 985 800 789

Trade Value (USD Billions) 1,758 887 2,838 1,226 148 2,029 589 514 372 25

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Depository Receipt
Negotiable financial security

Issued by a foreign publicly listed company

Allows investors to hold shares in form of equity

Traded on a local stock exchange

Common Example - ADR/GDR

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ADR is
A Certificate issued by a Bank in US Represents a certain amount of shares

of a foreign company on a foreign exchange

Traded on American Exchange, NYSE

Example: UBS is one of the premier

Swiss Banks in the world

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Types of ADR
ADR

Unsponsored ADR

Sponsored ADR

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ADR
o Traded on OTC OR Pink sheet

Level I Level 2 (listed)

o Need not comply with GAPP

o SEC requirement
o Significant disclosure to SEC o Company require to file form 20-F o Comply with US GAAP o Listing is permitted on AMEX,NASDAQ or NYSE o Must meet exchange listing agreements
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ADR
o Highest level

Level 3 (offering)

o Setting up to level 3 means issuing shares to raise capital in US o Company requirement to file Form F-1. o Company require to file form 20-F annually o Comply with US GAAP

o Important information must also filed with SEC through Form 8K

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Process of ADR/GDR
DR Bank

Purchase
Shares in bulk

Place

Local Custodian Bank of DB (home market)

Notify
DB (U.S)

Issue
NASDAQ, NYSE , AMEX,LSE
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Cancellation of ADR/GDR
Investors notify their broker.

Broker can either sell the DR

U.S broker

Surrender

through an intra-market transaction or through a crossborder transaction.

In

DR to DB (U.S)

Deliver

cross-border transactions, brokers, either through their international offices or through a local broker in the company's home market, will sell the shares back into the home market.

Local Broker

Sell

Local custodian Bank of DB

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Infosys makes Debut in US

Listed in NASDAQ Stock Exchange in 1999 The Infosys stock started at $37, the first day of trading. Two ADRs were equivalent to one Indian share, the

price works out to Rs2886 whereas the Infosys scrip was quoted at Rs3201 on the Indian stock exchanges. The initial US public offering of 1.8million American Depository shares represents 900000 equity shares, each share being equal to two ADR. INFY ADRs have voting rights and are also eligible for cash dividends.
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Scope for Arbitraging

Two ADR equal to 1 share = Rs 2886 Share price quoted in India= Rs 3201 Buy ADR

Cancel ADR Convert to shares Sell in local market Profit = 3201- 2886 = Rs 315 (Assuming no transaction charges)

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Price To Earnings Ratio

The P/E is the most popular metric of stock analysis, although it is far from the only one you should consider. It is defined as: Market Price Per Share/ Annual Earnings Per Share The P/E is sometimes referred to as the "multiple", because it shows how much investors are willing to pay per dollar of earnings. If a company were currently trading at a multiple (P/E) of 20, the interpretation is that an investor is willing to pay $20 for $1 of current earnings.

Interpretation : The P/E gives you an idea of what the market is willing to pay

for the companys earnings.

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Price To Earnings Ratio

A High P/E Investors are willing to pay more for the companys

earnings since high hopes for this stocks future price & earnings It can also be read as overpriced stock A Low P\E It can mean two things : First either the market is not willing to pay a premium for its futures profits or it has simply been overlooked.
What is the right P\E Ratio ? There is no correct answer to this question, because part of the

answer depends on your willingness to pay for earnings. The more you are willing to pay, which means you believe the company has good long term prospects over and above its current position, the higher the right P/E is for that particular stock in your decision-making process.
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Price To Book Value Ratio

The price-to-book value ratio, expressed as a multiple, is an indication of how much shareholders are paying for the net assets of a company. (i.e. how many times a company's stock is trading per share compared to the company's book value per share) It is defined as: Current Market Price Per Share / Book Value Per Share This ratio is used by value based investors to identify undervalued stocks Interpretation : The P/B gives you an idea of the share price relative to the value of the companys total assets net off its liabilities.

In simple words it shows what shareholders will get after the company is sold and all its debts are paid off. Low ratio represents a good sign for the company. It helps investors to compare the market value or the price they are paying per share , to the traditional measure of the firms value.
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Price To Book Value Ratio

Limitations: This ratio does not reflect the intangible assets of the company like intellectual assets , which represent the basis of the functions of the high-tech companies e.g Microsoft . As a result , it leads to low book value and artificially high P\B Ratio.

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Earnings Per Share Ratio

Basic EPS

is the portion of the companys profits allocated to each outstanding share of the common stock. This ratio serves as an indicator of a companys profitability. It is calculated as: (Net Profits After Tax Preference Dividend) / Average O/s shares
Diluted

EPS expands on basic EPS by including the shares of convertibles or warrants outstanding in the outstanding shares number

Interpretation : This ratio gives you an idea of how much you have earned on the stock in the company on a per share basis . It is used extensively in the stock market as the standard of stated earnings. In simple words , EPS evaluates solely the performance of the company and do not consider stock market prices of the company. The advantage of this is that EPS is not dependent on such factors as market optimism, pessimism or consensus

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Earnings Per Share Ratio

Limitations:
This ratio tells the current profitability of the company, it

does not tell us anything about the future of the company. For example, when the company sold an asset it held, say one of its buildings, it results in a sudden jump in EPS. Likewise, when the company purchases an asset, for example a production plant, it results in a sudden drop in its EPS.
The financial figures of the company should be dealt

with in depth, as otherwise it can be quite misleading.

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Dividend Yield Ratio

This ratio indicates how much a company pays out in

dividends each year relative to its share price. Price Per Share

It is calculated as:

Annual Dividends Per Share /

Dividend yield is a way to measure how much cash

flow you are getting for each dollar invested in an equity positions. are seeking long term investments and a consistent return every year.

Dividend yield is most important for the investors who

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Dividend Yield Ratio

Interpretation :
While

dividend payout ratio judges the amount of dividend in relation to the company's earnings for the period, dividend yield ratio provides a comparison of amount of dividend in relation to investment needed to purchase its share.

A company might be paying out 50% of its earnings but

if the company's current share price is too high the investors might not be attracted by even the high payout ratio. A high share price will lead to low dividend yield and vice versa.

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FDI- Regulations
Setting up business operations in India by a foreign

company JV or Wholly Owned Subsidiary as per the Companies Act,

1956. Set up a Liaison Office / Representative Office or a Project Office or a Branch Office of the foreign company which can undertake activities permitted under the Foreign Exchange Management.
Receiving FDI for an Indian company Automatic Route Government Route
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Sectors not permitted to invest in

Retail Trading (except single brand product retailing) Atomic Energy Lottery Business Gambling and Betting Business of Chit Fund Nidhi Company Agricultural (excluding Floriculture, Horticulture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mushrooms, etc.) and Plantations activities (other than Tea Plantations) Housing and Real Estate business (except development of townships, construction of residential/commercial premises, roads or bridges). Trading in Transferable Development Rights (TDRs). Manufacture of cigars , cheroots, cigarillos and cigarettes , of tobacco or of tobacco substitutes.
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FDI in SSI
India has allowed Foreign Direct Investment up to 100% in many

manufacturing industries which were designated as Small Scale Industries.

India further ended in February 2008 the monopoly of small-scale units

on 79 items, leaving just 35 on the reserved list that once had as many as 873 items.
The remaining 35 items that would be produced by the SSI sector are

food and allied items, wood, wood products, paper, paper products, plastic products, organic chemicals, drugs, drug intermediates, other chemicals, chemical products, glass, ceramics, mechanical engineering and electrical machines, appliances and apparatus.
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Key Investments
Wholesale retailer Bharti Walmart, the joint venture (JV)

between US-based retail chain Walmart and Indian company Bharti Enterprises, plans to invest Rs 104 crore (US$ 18.82 million) in 2012. Global logistics major DHL group has revealed its plans to invest nearly Rs 2,100 crore (US$ 380.17 million) in India in the years to come. IKEA, the largest furniture chain of the world, is planning to invest Rs 10,500 crore (US$ 2 billion) in India . DFG, the German Research Foundation, is funding projects worth US$ 8 million - US$ 9 million in India.
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FII
Following entities / funds are eligible to get registered as FII:

Pension Funds Mutual Funds Insurance Companies Investment Trusts Banks University Funds Endowments Foundations Charitable Trusts / Charitable Societies

Further, following entities proposing to invest on behalf of broad based funds, are also

eligible to be registered as FIIs:

Asset Management Companies Institutional Portfolio Managers Trustees Power of Attorney Holders

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Applicability of an FII
Applicants track record, professional competence, financial

soundness, experience, general reputation of fairness and integrity. (The applicant should have been in existence for at least one year) whether the applicant is registered with and regulated by an appropriate Foreign Regulatory Authority in the same capacity in which the application is filed with SEBI Whether the applicant is a fit & proper person.

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Registration for an FII

"Form A" as prescribed in SEBI (FII) Regulations, 1995. Registration fee- US $ 5,000. SEBI generally takes seven working days in granting FII

registration. Validity period of registration is 5 years.

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Financial Instruments for FII

Securities in primary and secondary markets including

shares, debentures and warrants of companies, unlisted, listed or to be listed on a recognized stock exchange in India; Units of mutual funds; Dated Government Securities; Derivatives traded on a recognized stock exchange; Commercial papers.

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FII limits
Investments Equity Limit 10 % on total issued capital of Indian company

debt
Derivative Participatory notes

100% debt route

70 : 30 Route

US $ 1.55 billion
US $ 200 million Less than, equal to Rs. 250 cr. 40%

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