Capital Market

-Group Members Shweta Iyer Vedangi Bahrot Vruddhi Mehta Nibha Agarwal Varun Nair Nitin Parmar Avani Gosalia 28 05 53 02 61 74 25

Types of Financial market in India
• • • • • • • Capital Market Money Market Derivatives market Foreign Exchange market Commodity Market Insurance Market Mutual Fund Market

What is Capital Market?
• A capital market is simply any market where a government or a company can raise money (capital) to fund their operations and long term investment. Selling bonds and selling stock are two ways to generate capital, thus BOND MARKET and STOCK MARKET are considered capital markets. • Capital Market is characterized as the provider of long-term financing. The instruments used for this long-term financing are equity instruments, insurance instruments, derivative instruments and bonds. • Other examples of capital market instruments include equity, floating rate bonds, convertible bonds, asset backed securities, mortgage backed securities, and interest rate swaps.

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.

Indian Capital Market Historical perspective
• Stock Market was for a privileged few • Lack of Transparency - High tones costs • No use of Technology • Outdated banking system • Volumes - less than Rs. 300 cr per day

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 2003- T+2 settlements in all stocks

Factors contributing to growth of Indian Capital Market

• • • • • • •

Establishment of Development banks & Industrial financial institution. Legislative measures Growing public confidence Increasing awareness of investment opportunities Growth of underwriting business Setting up of SEBI Mutual Funds Credit Rating Agencies

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 • Introduction of Derivative products - Index / Stock Futures & Options • Margin Lending

Capital Market v/s Money Market
Extends beyond one year Term loans and financial leases, corporate equities, and bonds. Fixed Capital Requirement. Instruments have Primary as well as secondary market Formal place for transactions e.g.. Stock market Upto One year or less. Federal agency securities, commercial paper Working Capital Requirement. Instruments have only Primary market No Formal place for transactions

Indian Capital Market

Market

Instruments

Intermediaries Regulator
SEBI

Primary

Secondary

•Brokers •Investment Bankers •Stock Exchanges •Underwriters Debt

Equity

Players

CRA

Corporate

Intermediaries

Individual

Banks/FI

FDI /FII

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

Instruments in Secondary Market
• Debenture • Equity • Giltz securities • Derivatives • Hedge funds • FCCB

What is a Share or a Stock?
• In financial markets, a share is a unit of account for various financial instruments including stocks (ordinary or preferential). In simple Words, a share or stock is a document issued by a company, which entitles its holder to be one of the owners of the company. A share is issued by a company or can be purchased from the stock market. The common feature of all these is equity participation & limited in the case of preference shares .

IPO & It’s Important Terminology
• Investment Bankers & Underwriters • Registrar • Issue of Prospectus • Price Band • Allotment • Listing

Book building process
• • • • • • • • • Appointment of book runner i.e. merchant banker Preparation and submission of draft documents to SEBI and obtaining of an acknowledgement card. A specified price band (range) is to be determined by issuer and book runner Different price levels are invited from syndicate members .Adv. Should mention opening and closing dates for the bids Issuer arrives at a final cut-off rate & final allocation in consultation with book runner and lead manager Issuer and book runner may impose restrictions on number of shares that can be allotted to each client Final prospectus is filed with the (ROC) along with procurement agreement Placement portion opens for subscription Placement portion closes a day before the opening of public issue portion

The role of the stock exchange
• Creates investment opportunities for small investors

Government raises capital for development projects

Barometer of the economy

Stock Exchanges in INDIA
• Mangalore Stock Exchange • Hyderabad Stock Exchange • Uttar Pradesh Stock Exchange • Coimbatore Stock Exchange • Cochin Stock Exchange • Bangalore Stock Exchange • Saurashtra Kutch Stock Exchange • Pune Stock Exchange • National Stock Exchange • OTC Exchange of India • Calcutta Stock Exchange • Inter-connected Stock Exchange (NEW) • Madras Stock Exchange

• • • • • • • • • •

Bombay Stock Exchange Madhya Pradesh Stock Exchange Vadodara Stock Exchange The Ahmedabad Stock Exchange Magadh Stock Exchange Gauhati Stock Exchange Bhubaneswar Stock Exchange Jaipur Stock Exchange Delhi Stock Exchange Assoc Ludhiana Stock Exchange

National Stock Exchange (NSE) NIFTY50
• • • • An Index representing top 50 companies of India Has about 3200 odd listed companies Ranks third in the world in terms of number of transactions It is also a fastest growing exchange with a recorded growth of 16.6% Has various other Index for sub-classification of stocks of other companies.

Nifty 50
COMPANIES ABB Ltd. ACC Ltd. Ambuja Cements Ltd. Axis Bank Ltd. Bharat Heavy Electricals Ltd. Bharat Petroleum Corporation Ltd. Bharti Airtel Ltd. Cairn India Ltd. Cipla Ltd. DLF Ltd. GAIL (India) Ltd. Grasim Industries Ltd. SECTOR ELECTRICAL EQUIPMENT CEMENT AND CEMENT PRODUCTS CEMENT AND CEMENT PRODUCTS BANKS ELECTRICAL EQUIPMENT REFINERIES TELECOMMUNICATION - SERVICES OIL EXPLORATION/PRODUCTION PHARMACEUTICALS CONSTRUCTION GAS CEMENT AND CEMENT PRODUCTS WEIGHTAGE 0.60% 0.64% 0.63% 1.47% 2.86% 0.51% 4.11% 0.89% 1.00% 1.20% 1.18% 1.44%

COMPANIES
Hindalco Industries Ltd. Hindustan Unilever Ltd. Housing Development Finance Corporation Ltd. I T C Ltd. ICICI Bank Ltd. Idea Cellular Ltd. Infosys Technologies Ltd. Jindal Steel & Power Ltd. Larsen & Toubro Ltd. Mahindra & Mahindra Ltd. Maruti Suzuki India Ltd. NTPC Ltd. NALCO Oil & Natural Gas Corporation Ltd. HCL Technologies Ltd.

SECTOR
ALUMINIUM DIVERSIFIED FINANCE - HOUSING CIGARETTES BANKS TELECOMMUNICATION SERVICES COMPUTERS - SOFTWARE ENGINEERING

WEIGHTAGE
0.90% 2.13% 4.87% 4.64% 6.55% 1.00% 7.99% 7.20%

STEEL AND STEEL PRODUCTS 0.61% AUTOMOBILES - 4 WHEELERS 1.34% AUTOMOBILES - 4 WHEELERS 1.49% POWER ALLUMINIUM 1.44% 0.22%

3.13% OIL EXPLORATION/PRODUCTION COMPUTERS - SOFTWARE 0.50%

COMPANIES
HDFC Bank Ltd. Hero Honda Motors Ltd.

SECTOR
BANKS

WEIGHTAGE
4.87% 1.06% 0.48% 0.71% 0.39% 0.78% 1.38% 11.18% 1.26% 0.46% 0.61% 3.52% 0.75% 1.69%

AUTOMOBILES - 2 AND 3 WHEELERS Power Grid Corporation of India POWER Ltd. Punjab National Bank BANKS Ranbaxy Laboratories Ltd. Reliance Capital Ltd. Reliance Communications Ltd. Reliance Industries Ltd. Reliance Infrastructure Ltd. Reliance Power Ltd. Siemens Ltd. State Bank of India Steel Authority of India Ltd. Sterlite Industries (India) Ltd. PHARMACEUTICALS FINANCE TELECOMMUNICATION SERVICES REFINERIES POWER POWER ELECTRICAL EQUIPMENT BANKS STEEL AND STEEL PRODUCTS METALS

COMPANIES

SECTOR WEIGHTAGE

Tata Motors Ltd. Tata Power Co. Ltd. Tata Steel Ltd. Unitech Ltd.

AUTOMOBILES - 4 WHEELERS POWER STEEL AND STEEL PRODUCTS CONSTRUCTION

0.91 1.67 1.82 1.13 0.70% 0.44% 0.27% 2.01%

Sun Pharmaceutical Industries Ltd.PHARMACEUTICALS Suzlon Energy Ltd. Tata Communication Tata Consultancy Services Ltd. ELECTRICAL EQUIPMENT TELECOMMUNICATION SERVICES COMPUTERS - SOFTWARE

Bombay Stock Exchange (BSE) Sensex30
• • It is an index of 30 stocks representing 12 major sectors BSE is the world's number 1 exchange in terms of the number of listed companies and the world's 5th in transaction numbers Market capitalization as on December 31, 2007 stood at $1.79 trillion An investor can choose from more than 4,700 listed companies For easy reference, Shares are classified into A, B, S, T and Z groups

• •

Sensex 30
COMPANIES ACC Ltd. Bharat Heavy Electricals Ltd. Bharti Airtel Ltd. DLF Ltd. Grasim Industries Ltd. HDFC HDFC Bank Ltd. Hero Honda Motors Ltd. Hindalco Industries Ltd. Hindustan Unilever Ltd. ICICI Bank Ltd. Infosys Technologies Ltd. ITC Ltd. Jaiprakash Associates Ltd. SECTOR Housing Related Capital Goods Telecom Housing Related Diversified Finance Finance Transport Equipments Metal,Metal Products & Mining FMCG Finance Information Technology FMCG Housing Related WEIGHTAGE 0.71% 3.15% 4.76% 1.47% 1.56% 5.25% 4.47% 1.36% 1.23% 2.30% 7.60% 9.32% 4.86% 1.46%

COMPANIES
Larsen & Toubro Limited Mahindra & Mahindra Ltd. Maruti Suzuki India Ltd. NTPC Ltd. ONGC Ltd. Reliance Communications Limited Reliance Industries Ltd. Reliance Infrastructure Ltd. State Bank of India Sterlite Industries (India) Ltd. Sun Pharmaceutical Industries Ltd. Tata Consultancy Services Limited Tata Motors Ltd. Tata Power Company Ltd. Tata Steel Ltd. Wipro Ltd.

SECTOR
Capital Goods Transport Equipments Transport Equipments Power Oil & Gas Telecom Oil & Gas Power Finance Metal,Metal Products & Mining Healthcare Information Technology Transport Equipments Power Metal,Metal Products & Mining Information Technology

WEIGHTAGE
7.07% 1.50% 1.92% 2.08% 4.02% 1.79% 13.36% 1.47% 4.95% 2.31% 0.81% 2.31% 1.20% 1.76% 2.60% 1.35%

BSE- Sectoral Indices
• • • • • • • • POWER IT BANKEX FMCG PSU METAL REALTY CG AUTO OIL&GAS CD

Cash Market v/s Future Market
• • • Risk Involved is less Has no Expiry Can buy any number of Shares • Need to pay full amount of purchase • Can trade only in Equity shares • Can trade in more than 5000 listed shares • Cannot buy or sell Index Eg-Reliance, Tata Steel, Bharti Airtel, etc • • • • High Risk Involved Has an definite Expiry Need to buy in fixed Lot sizes Need to pay margin amount for purchase • Can trade all Instruments of financial market • Option available here is less than 500 shares • Can buy or sell Index also Eg-Nifty50 futures, Bankex futures, Reliance futures

Basic Terminologies Before Trading
• • • • • • • • • • • • • Capital Trading Account Depository Participant Broker & Sub-Broker Brokerage Script Code Script Name Intra-day & Delivery Bid Quantity & Bid Price Ask Quantity & Ask Price Block Deal Short Trade ADR & GDR

• • • • • • • • • • • • •

Open, High, Low & Close Price Last Traded Price & Quantity Stop Loss Hedge Funds P/E Ratio E.P.S. Top Line Bottom Line 52-week High/Low Circuit Limit Nifty Premium & Discount Futures Contract Options Contract

How to Start Trading?
REGISTER DEPOSIT CAPITAL

BUY SHARES

CALL BROKER

SELL SHARES

PROFIT or LOSS

Why share prices fluctuate?
Demand & Supply:
• Speculation or Insider Trading • Results • FDI • Political Interference • Change in Policy • Change in Management

Derivative Contract
• • • A derivative is a financial instrument that is derived from some other asset, index, event, value or condition. Derivative traders enter into an agreement to exchange cash or assets over time based on the underlying asset. Derivatives are often leveraged, such that a small movement in the underlying value can cause a large difference in the value of the derivative. Derivatives can be used by investors to speculate and to make a profit if the value of the underlying moves the way they expect. Alternatively, traders can use derivatives to hedge or mitigate risk in the underlying, by entering into a derivative contract Eg- Future Contract & Option Contract

• •

Future Contract – How is it Traded
• • • The contracts are traded on a futures exchange Futures contracts are not "direct" securities like stocks or bonds but a type of derivative contract The price is determined by the instantaneous equilibrium between the forces of supply and demand among competing buy and sell orders on the exchange at the time of the purchase or sale of the contract. The future date is called the delivery date or final settlement date Futures traders are traditionally a) Hedgers b) Speculators The first futures exchange market was the Dōjima Rice Exchange in Japan in the 1730’s

• •

Symbol ABAN TATASTEEL TATAMOTORS SUNPHARMA SBIN RELCAPITAL RELIANCE RANBAXY RCOM NFTYMCAP50 NIFTY LT BANKNIFTY AXISBANK FINANTECH GTOFFSHORE UTVSOF

Market lot 50 382 425 225 132 138 75 800 350 75 50 100 25 225 150 250 300

Total Margin % 36.22 35.77 39.14 21.58 28.05 38.09 30.29 28.42 38.89 15.09 15.73 29.61 17.11 30.45 33.54 59.63 70.71

Total Margin Per Lot 13359.25 31171.42 27969.25 51609.63 48897.26 29600.09 28633.5 57172 33535.25 15455.8 23950.55 24373.5 21982.15 35592.75 26187 37341.25 57757.5

Closing Price 737.67 228.13 168.14 1062.91 1320.62 563.12 1260.42 251.46 246.37 1365.65 3045.21 823.15 5139.02 519.51 520.51 250.49 272.27

Option Contract – How is it Traded
• An option is a contract between a buyer and a seller that gives the buyer the right but not the obligation to buy or to sell a particular asset In return, the seller collects the premium from the buyer A call option gives the buyer the right to buy the underlying asset; a put option gives the buyer of the option the right to sell the underlying asset If the buyer chooses to exercise this right, the seller is obliged to sell or buy the asset at the agreed price The buyer may choose not to exercise the right and let it expire The underlying asset can be a piece of property, or shares of stock or some other security, such as, among others, a futures contract

• •

• • •

Volatility Index (VIX)
• • • • • • • Volatility Index is a measure of market’s expectation of volatility over the near term. Is described as the “rate and magnitude of changes in prices” In finance often referred to as risk. India VIX is a volatility index based on the Nifty 50 Index Option prices. India VIX is calculated based on the bid-offer prices of the near and mid month Nifty 50 Index Options. India VIX is a premier barometer of investor consensus of market volatility expressed through option pricing. The Chicago Board of Options Exchange (CBOE) was the first to introduce the volatility index for the US markets in 1993.

VIX for week ended 25/09/09
Date Open High Low Close Prev. Close 25.86 Change % Change

22/9/09

25.86

27.86

25.86

26.80

0.94

3.63

23/9/09

26.80

27.50

25.88

26.51

26.8

-0.29

-1.08

24/9/09

26.51

28.76

24.29

24.36

26.51

-2.15

-8.11

25/9/09

26.43

26.43

24.43

26.11

24.36

1.75

7.18

Effects of Inflation on Indian Stock Market
• RBI Increasing Rates • Lack of Liquidity • Poor results of Corporate • Real Estate Leading the down-fall • Banking sector the under-performer

Financial Aspects of Capital Market
• • • • • Average Daily Turnover of Rs. 60,000 Crores. Contribution of Cash Market = 20% of Total Turnover. 80% comes from Derivatives side. About 30% of Total Turnover comes from FII’s. Next 50% comes from FI’s, Insurance Companies, A.M.C.’s, Mutual Funds and other Institutional Investors.

Sector Wise FDI Limits in India
• • • • • • • • Hotel & Tourism sector – 100% Non-Banking Financial Companies (NBFC) – 49% Insurance Sector – 26% Telecommunication – 49% Trading – 51% to 100% Power – 100% Drugs & Pharmaceuticals – 100% Roads, Highways, Ports and Harbors – 100%

Role Of Credit Rating Agencies
• • Their main function is to grade the different sector and companies in terms of performance and offer solutions for up gradation. The credit rating agencies in India offer varied services like mutual consulting services, which comprises of operation up gradation, risk management. The have special sections to carry on research and development work of the industries. CRISIL & ICRA the two top tier Rating Agencies in India Helps the Stock Exchanges in classifying the stocks in various groups. Eg- A, B, T, Z, etc. Ratings use by investment banks and broker-dealers, government regulators, etc

• • • •

Impact of various events on capital market
• • • October 30, 2006 The Sensex crossed the magical figure of 13,000 and closed at 13,024.26 points. It took 135 days December 5, 2006 The Sensex crossed the 14,000-mark to touch 14,028 points. It took 36 days July 6, 2007 The Sensex crossed the magical figure of 15,000 to touch in afternoon trade. It took seven months for the Sensex to move from 14,000 to 15,000 points September 19, 2007 The Sensex scaled yet another milestone during early morning trade, rising by 450 points from the previous close it took 53 days to reach 16,000 from 15,000. Nifty also touched a new high at 4659, up 113 points. September 26, 2007 The Sensex scaled yet another height during early morning trade crossing the 17,000-mark . Some profit taking towards the end, saw the index slip into red to 16,887 - down 187 points from the day's high. The Sensex ended with a gain of 22 points at 16,921.

• • •

• • •

October 9, 2007 The BSE Sensex crossed the it took just 8 days to cross 18,000 points. The index zoomed to a new all-time intra-day high of 18,327. October 15, 2007 The Sensex crossed the 19,000-mark, the index gained the last 1,000 points in just four trading days. The Nifty closed 242 points to close at 5,670. October 29, 2007 The Sensex crossed the 20,000. The index took only 10 trading days to gain 1,000 points after the index crossed the 19,000-mark on October 15. The NSE Nifty rose to a record high 5,922.50 points January 8, 2008 The sensex peaks. It crossed the 21,000 mark in intra-day trading after 49 trading sessions January 21 & 22, 2008 The sensex Losses nearly 3000 points to end above 16000 odd. Touching 15500 in intra-day trade June 13, 2008 The sensex closed below 15,200 mark, Indian market suffer with major downfall from January 21,2008

• • • • •

June 25, 2008 The sensex touched an intra day low of 13,731 during the early trades, then pulled back and ended up at 14,220. July 2, 2008 The sensex hit an intra day low of 12,822.70 on July 2, 2008. This is the lowest that it has ever been in the past year. Oct 6, 2008 The sensex closed at 11801.70 hitting the lowest in the past 2 years Oct 10, 2008 The Sensex today closed at 10527,800.51 points down from the previous day having seen an intraday fall of as large as 1063 points May 18, 2009 After the result of 15th Indian general election Sensex gained 2110.79 points from the previous close of 12173.42 these creates a new history in Indian Market

Impact of Slowdown on markets
• Indian IT sector • Power • Banking • Real-estate • Construction

Sensex from 2008-2009

State of Capital Market
• • • • • • Foreign Capital coming back to India It Sector Leading the way Crude helping market’s up-move Real-Estate still under-pressure Banks full of Liquidity Investor confidence helping Stock Market

Basic Trading Strategies
• Develop a winning strategy and trade often. A small daily profit can provide a large annual return Trade only stocks with the highest growth probabilities Be sure that expected return is larger than the transaction cost Avoid risk as much as possible Diversification is the only way to survive in the market

• • • •

Capital of Rs 10k

Invest 2k in one sector

Retain 20% for contingencies

2k in another sector

Invest 3k in Mutual Fund or FD’s

Dow Theory
• • • • • • The market has three movements Market Trends have three phases The stock market discounts all news Stock market averages must confirm each other Trends are confirmed by volume Trends exist until definitive signals prove that they have ended

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