Introduction

• Establishment of new business

• Running business
• Modernize
• Expand
• Diversification
• The availability of adequate finance is vital for
the survival and growth of business
 Introduction

ECONOMIC SYSTEM

HOUSEHOLD SECTOR BUSINESS SECTOR

 Introduction
• House hold sector , who saves money

• Business sector , who needs money for the

purpose of sale of goods and services

• Financial System acts an intermediary

between savers and investors of money
 Functions of Financial Markets
• Facilitate the transfer of savings from savers to
investors
• Provides liquidity to financial assets
• Provides pricing information in the market
• Saves time, money and efforts of buyers as
well as sellers
 Types of Financial Markets

Financial Markets

Money Markets Capital Markets

 Money Market
• Deals in financial assets with a maturity of less
than one year

• Provides a market for credit instruments like

bills of exchange ,promissory note etc

• Credit instruments are used by Business Units

and other organizations and government
 Money Market
• The Indian money market consists of RBI,
Commercial Banks, Co-operative Banks,
NBFCs , Financial Institutions like LIC,GIC,UTI
• RBI is regulator of money market in India
 Money Market Instruments
• Treasury Bills-Promissory Note , Issued by RBI on
behalf of Central Government ,Highly liquid, no risk,
available for minimum amount of Rs. 25000 and in
multiples there of(91/182/364 days)

• Commercial Paper-Short term unsecured instrument

issued in form of promissory note , maturity period-7
days to 364 days ,Issued by large and creditworthy
companies(min 5 lacks and in multiples)
 Money Market Instruments
• Certificates of deposits-Short term , Unsecured ,
negotiable instruments issued by commercial banks
to individuals , co-operatives and companies ,
promissory note,maturity period ranges from 7 days
to 364 days.(Min 1 Lac and in multiples)
• Commercial Bills-Short term , negotiable , self-
liquidating instrument which is used to finance
working capital requirements of firms
 Money Market Instruments
• Call money-Short term finance repayable on
demand and its maturity period varies between one
day to fifteen days

• It is a method by which commercial bank borrow

from each other to maintain the CRR fixed by RBI

• Interest rate is Call Rate and its highly volatile

 Capital Market
• A market which deals in medium and long-
term funds , both debt and equity
• The market is an institutional arrangement for
borrowing medium and long term funds and
which provide facilities for marketing and
trading of securities
• Capital Market consist of Development banks ,
commercial banks and Stock exchanges and
Individuals
 Capital Market

Capital
Market

Primary Secondary
Market Market
 Primary Market-Nature
• The primary market is where securities are
created

• It’s a market in which firm sell new stocks and

bonds to public for first time

• Company interacts directly with investors

 Structure Of Primary Market
• Rights Issue
• Offer For Sale
• Private Placement
• IPO
 Offer for sale
• Introduced by SEBI in 2012
• Under this method, a company does not issue
securities directly to the public but stakeholders
promoters sell their shares to public.
• No fresh shares
• Short Process
• Government Institution
• Top 200 companies on the basis of market
capitalization
 Private Placement
• Under private placement method, a company
allots its securities institutional investors and
some selected individuals
• This method enables the company to raise
capital more quickly than a public issue
• A company which can not afford to raise
resources from the public issue , may opt for
this method
 Rights Issue
• Under this method, a company offers new shares
to its existing shareholders in proportion to the
number of shares they already possess
• The shareholders may either accept the offer for
himself or assign a part or all of his rights to
another
• The company offers these rights to the
shareholder at price below the current market
price
 Initial Public offering in India
Features
• New securities are issued for the first time
• Through stock exchange
• Companies raise funds
• Long term capital is raised
• Securities are issued directly to investors
• Capital formation
• Process of going public
Reasons -
Expansion, new business setup, modernization, purchase
of assets, private company may want to become public

Norms/ Rules -
• Min. Rs.15 crore pre tax operating profits in last 3 years
• Net tangible assets of min. Rs. 3 crore in last 3 years
• Net worth of min. Rs. 1 crore for last 3 years
• Issue size must be less than 5 times the net worth of
company
• Promoter’s contribution should be min. 20% of total
capital
• Promoter’s contribution is locked in for 3 years
Parties Involved
• Promoter – Main individual who forms the company - Advices everyone to
invest their funds in his co.
• Investment banker – Provides services to companies and governments –
Don’t serve general public like banks do – BOOK RUNNING LEAD
MANAGER (BRLM)
Pre Issue role Post Issue role

Inspects operations, management, Manages “Escrow” account

plans, legal requirements, statutory (Account of other peoples funds
requirements etc. which is maintained by a third party)

Compliance with requirements of stock Coordinates allotment of shares

exchanges, ROC and SEBI
Banker to the issue
Files prospectus
Handles refunds
Plans marketing strategies

• Fee based / fund based services

Ex ; Barclays bank, Edelweiss financial services, JP Morgan, Goldman Sachs, Citigroup etc.
• Underwriter – - Guarantees marketability of the issue
-promises to subscribe the unsubscribed shares
- Charges underwriting fees
- Many Investment bankers provide underwriting services

• Credit Rating Agency (CRA) – - Regulated by SEBI

- Evaluates Credit worthiness of companies or govts.
- credit worthiness – ability of debtor to pay back
- All new issues must be rated by CRA
- If Issue size > 100 crore then 2 CRAs will rate
- Can’t rate securities involving own management
India has six CRAs – 1. CRISIL 2. CARE 3. ICRA 4. SMERA
5. Fitch India 6. Brickwork ratings
- Global CRAs – Moody’s, Standard & Poor, Fitch etc.
STEPS IN IPO Promoter nominates investment banker (BRLM) and underwriters

BRLM prepares and submits Prospectus to SEBI for approval

Authorized Credit Rating Agency (CRA) is hired

Approval of decided stock exchange is sought

Start distribution of IPO application through advertising agencies

Fixed Pricing Book building

IPO OPEN OR
process process

IPO CLOSED for subscription

Prices under book building process are decided

Shares allotted as decided Underwriters subscribe for the unsubscribed shares

Shares start reflecting in DEMAT accounts

SHARES GET LISTED ON STOCK EXCHANGE

 IPO - PRICING Free pricing - No role of SEBI in price fixation
Fixed pricing
fair price is set – pre decided by mgt. – Full disclosure of reasons for pricing

Book Building pricing

Price determined by bidding process – based on demand - option of 75% or 100% book
building
20% price band set as per a tentative expected price – Floor price disclosed one day prior
to bidding
+20%
-Electronic bidding only
- Bid is submitted in the system only by authorized members -20%

FEATURES FIXED PRICING BOOK BUILDING

Pricing Price known in advance Only indicative price range is known
Demand Known only after the Can be known everyday as the book
closure of issue building is going on
Payment Payment at time of Payment is collected only after
subscription, refund allotment
after allocation
IPO-Limitations

• Accounting and marketing cost

• Requirement to disclose accounting and
business information
• Public dissemination of information which
may be misused by competitors
 SECONDARY MARKET-Nature
• Market in which securities already issued by companies
are subsequently traded among investors.
• Continuous trading.
• The secondary market is that market in which the
buying and selling of the previously issued securities is
done.
• The transactions of the secondary market are generally
done through the medium of stock exchange.
• The chief purpose of the secondary market is to create
liquidity in securities.
 SECONDARY MARKET-Nature
• Under Securities Contract Regulation Act 1956,
securities trading is regulated by Central
Government
• Takes place only in stock exchanges recognized.
• SEBI, Company Law Board and stock exchanges
regulate secondary market.
 Secondary Market-Functions
• Provides liquidity and marketability of existing
securities
• Determines prices of securities
• Provides information about prices and sales
• Provides safety to dealings and investment
• Contributes to economic growth
• Facilitates better allocation of funds
• Provide scope for speculation
 Secondary Market-Structure
• First stock exchange in India was BSE in Mumbai
• There were a number of unorganized stock
exchanges that used to function in the country
without any formal set-up were known as kerb
market
• The government of India passed the Security
Contracts(Regulation) Act in 1956 for the
recognition and regulation of stock exchanges in
India
 Secondary Market-Structure
• There are 23 stock exchanges in India at
present

• Among them most prominent stock exchanges

are NSE,BSE
 NSE & BSE

Secondary Market Structure

 INTRODUCTION
The national stock exchange of India was promoted
by leading financial institution at the order of
government of India and was incorporated in
November 1992 as a tax paying company.
In April 1993,it was recognized as a stock exchange
under the securities contract(Regulation) Act,
1956…NSE commenced operation in June 1994
The capital market segment of the NSE commenced
operation in November 1994 ,while operation in the
derivatives segment in June 2000
 PURPOSE

• Establishing a National wide trading facility for all type

of securities.
• Ensuring equal access to investor all over the country
through an appropriate communication network.
• Providing for a Fair, efficient and transparent
securities market using electronic Trading system.
• Enabling shorter Settlement cycles.
• Meeting up with international benchmark and
standard
 ADVANTAGES
WIDER ACCESSIBILITY
SCREEN BASED TRADING
NON-DISCLOSURE OF THE TRADING MEMBERS
IDENTITY
TRANSPARENT TRANSACTION
MATCHING OF ORDERS
TRADING IN DEMATERIALISED FORM
• Raising capital for businesses
• Mobilizing savings for investment
• Facilitating company growth
• Profit sharing
• Corporate governance
• indicator of the economy
 Mile Stones

• November 1992 Incorporation

• April 1993 Recognition as a stock exchange
• October 1995 Became largest stock exchange in
the country
• April 1996 Launch of S&P CNX Nifty
• November 1997 Best IT Usage award by
Computer Society of India.
• May 1998 Launch of NSE's Web-site:
www.nse.co.in
• February 2000 Commencement of Internet
Trading
• June 2000 Commencement of Derivatives Trading
(Index Futures)
• January 2002 Launch of Exchange Traded Funds
(ETFs)
• June 2007 NSE launches derivatives on Nifty
Junior & CNX 100.
• August 2008 Launch of Currency Derivatives
• November 2009 Launch of Mutual Fund Service
System
• February 2010 Launch of Currency Futures on
additional currency pairs
 Markets
Currently, NSE has the following major segments of the capital
market:
• Equity
• Futures and Options
• Retail Debt Market
• Wholesale Debt Market
• Currency futures
• MUTUAL FUND
BSE
 About

• Original named as “The Native Share & Stock

Brokers Association”
• Established : 1875
• Location : Mumbai
• Work on bid-ask quote
• In 1995 its fully computerized system (screen-based
system)
• In 1996 SEBI permitted BSE to extend its BOLT
network outside of Mumbai.
• SENSEX is major index of BSE

• SENSEX comprise 30 scripts from different

sector
• Other important indices originating from the
Bombay exchange include the BSE 100, BSE
500, BSEPSU, BSEMIDCAP, BSESMLCAP.
 Various stock exchange in India
• Bombay Stock Exchange (BSE)
• National Stock Exchange of India (NSE)
• Indian Commodity Exchange (ICEX)
• United Stock Exchange of India (USE)
• Multi Commodity Exchange (MCX)
• Over the Counter Exchange of India (OTCEI)
• Inter-connected Stock Exchange of India (ISE)
• Madras Stock Exchange (MSE)
• Ahmedabad Stock Exchange (ASE)
• Bhubaneshwar Stock Exchange (BhSE)
• Cochin Stock Exchange (CSE)
• Hyderabad Stock Exchange (HSE)
• Calcutta Stock Exchange (CSE)
• Delhi Stock Exchange (DSE)
• Bangalore Stock Exchange
• Madhya Pradesh Stock Exchange, Indore
• Jaipur Stock Exchange (JSE)
• Magadh Stock Exchange, Patna
• UP Stock Exchange (UPSE)
• Vadodara Stock Exchange,Vadodara (VSE)
 17 most valuable stock exchanges
•
across
New York Stock Exchange
world
• NASDAQ-National Association of Securities Dealers
Automated Quotations
• Japan Exchange Group
• Shanghai Stock Exchange
• London Stock Exchange
• Euronext
• Shenzhen Stock Exchange-China
• Hong Kong Stock Exchange
• TMX Group-Canada
• Deutsche Boerse-Germany's
• National Stock Exchange of India
• SIX Swiss Exchange
• Korea Exchange
• Australian Securities Exchange
• NASDAQ Nordic Exchanges
• Johannesburg Stock Exchange
 Secondary Market-Limitations
• Annual Listing Fee
– Prescribed initial listing fee and annual listing fee on or before
April 30 each year.
• Regulations of Stock Exchange
– Agrees to comply with rules, byelaws and regulations now and
hereafter.
• Notice of Board Meetings
– Prior intimation at least seven days in advance.
• Book closure notice
– 42 days advance notice, specifying the purpose.
 Secondary Market-Limitations
• Submission of reports
– Annual reports, B/S, P&L, and all periodical and special reports
– All notices, resolutions, and circulars relating to new issue
– Notices and call letters of all meetings.
– Proceedings of annual/general body meeting.
– Copies of all notices, circulars etc issued or advertised in the press.

• Publication of periodical interim statements

– In a form approved by exchange.
TRADING SYSTEM
 DEPOSITORIES
• A depository is an institution which holds
the shares of an investor in electronic form.

• It facilitates transactions in securities simply

by means of book entry.
 DEPOSITORIES in INDIA
There are two main depositories in India:

• CENTRAL DEPOSITORY SERVICE LIMITED

(CDSL)

• NATIONAL SECURITIES DEPOSITORY LIMITED

(NSDL)
 DEPOSITORY PARTICIPANTS
• A Depository Participant (DP) is an agent of the
depository. He functions as a mediator between the
issuing company and the investors through the
depository.
• It opens the accounts and maintains the securities
account balance of the investors and conveys them
the status of their holding from time to time.
 DEPOSITORY PARTICIPANTS
• As per SEBI guidelines, banks, stock brokers,
etc. can become depository participants.
• Every Depository Participant(DP) needs to be
registered under a Depository before it begins
its operation or trade in the market.
 TRADING
Trade in stock markets means the transfer of a stock
or security from a seller to a buyer. This requires
these two parties to agree on a price. Equities
(Stocks or shares) confer an ownership interest in a
particular company.
 TRADING PROCESS
Approach a broker or a bank.
Enquire about their DP.
If you feel they are trustworthy, open up a demat
account with them.
You will be provided a username. You can either
ask them to do the trading on your behalf or
have the online trading option enabled for
yourself.
 TRADING OPTIONS
An investor wanting to trade can invest his
money in the following ways in the markets:

• Equities

• Debentures/ Bonds
 Trading Of Securities- Debentures/
Bonds
• Debt instruments represent contracts
whereby one party lends money to another on
pre-determined terms with regard to rate of
interest to be paid by the borrower to the
lender, the periodicity of such interest
payment, and the repayment of the principal
amount borrowed
 Trading Of Securities- Debentures/
Bonds
• In the Indian securities markets, the term
‘bond’ is used for debt instruments issued by
the Central and State governments and public
sector organizations, and the term
‘debentures’ for instruments issued by private
corporate
 Trading Of Securities- Debentures/
Bonds
• The market for government securities is the
most dominant part of the debt market in
terms of market capitalization, trading volume
and number of participants.
 Trading Of Securities- Debentures/
Bonds
• The NSE started its trading operations in June
1994 by enabling the Wholesale Debt Market
(WDM) segment of the Exchange.
• This segment provides a trading platform for a
wide range of fixed income securities that
includes Central government securities, treasury
bills (T-bills), bonds issued by public sector
undertakings (PSUs), floating rate bonds (FRBs),
zero coupon bonds (ZCBs), index bonds,
commercial papers (CPs), certificates of deposit
(CDs), corporate debentures
 Trading Of Securities- Debentures/
Bonds
• To further encourage wider participation of all
classes of investors, including the retail
investors, the Retail Debt Market segment
(RDM) was launched on January 16, 2003
• This segment provides for a nationwide,
anonymous, order driven, screen based
trading system in securities
 Trading Of Securities- Debentures/
Bonds
• In developed economies, bond markets tend
to be bigger in size than the equity market. In
India however, corporate bond market is quite
small compared to the size of the equity
market.
• Banks, financial institutions, mutual funds,
provident funds, insurance companies and
corporate are the main investors in debt
markets.
 Trading Of Securities- Equity
• Equity implies ownership rights in the
corporate entity that has issued the
instruments to the public

• Primary Market and Secondary Market

 Security trading-Types of orders

• Basically the trader can use two types of

orders

a) Market order

b) Limit order
 Stop loss order
• Stop Loss Market

• Stop Loss Limit

 Margin Trading
• You can buy shares on margin
• This means that you provide a portion of
purchase value as margin and the rest is given
by broker as a loan to you
• For example if you have a margin account with
kotaksecurities.com, you can get loan up to
75% of purchase value
• So if your margin account has balance of Rs.
25000,you can buy shares up to Rs. 100000
 Margin Trading

• Initial Margin

• Maintenance Margin
 Clearing and Settlement
Clearing House: An entity different from exchange.
– Guarantees all transactions
- Maintains marginal requirements
- – Ensures delivery of securities and funds

Margin Requirement – Minimum amount of money that you must have

in your trading account to place a trade order

It is good faith money, to guarantee the trade

Transactions are settled electronically
Settlement - Rolling settlement – T +2 basis

2 Steps :
a. CLEARING (TRADE COMPARISON) : To resolve any king of
discrepancy in transaction due to information provided by parties
b. SETTLEMENT: “The exchange of cash or assets in return of
ownership of securities”
- dematerialized certificates held in Depositories
- settlement is done only in book entries
CLEARING AND SETTLEMENT PROCESS

Asks to take Enters trade

CLIENT/
buy/sell position positions
INVESTOR
(BUYER or SELLER BROKER EXCHANGE
Tells Obligation

Tells Obligation Information

of client about
PAY IN TRANSFERED obligation
Of FUNDS/ PAY OUT of both
SECURITIES buyer and
PAY OUT seller
of FUNDS/SECURITIES
CLEARING
DEPOSITORY
HOUSE
TRANSFERED PAY IN
SEBI – ROLE AND
FUNCTIONS
 Mission of SEBI
• Securities & Exchange Board of India (SEBI) formed
under the SEBI Act, 1992 with the prime objective of
– Protecting the interests of investors in securities
market
– Promoting the development of securities market
– Regulating, the securities market and for matters
connected therewith or incidental thereto.

Focus being the greater investor protection, SEBI has

become a vigilant watchdog
 Functions of SEBI
• Regulating the business in stock exchanges
and any other securities market
• Registering and regulating the working of
stock brokers , sub-brokers, share transfer
agents , bankers to the issue , registrars to an
issue , merchant bankers, underwriters,
portfolio managers , investment advisors
 Functions of SEBI
• Registering and regulating the working of
collective investment schemes including
mutual funds
• Prohibiting fraudulent and unfair trade
practices in the securities market
• Promoting investors’ education and training of
intermediaries in securities market
• Prohibiting insiders trading in securities
 Functions of SEBI
• Regulating substantial acquisition of shares
and take over of companies
• Calling for information , undertaking
inspection , conducting enquiries and audits
of the stock exchanges , intermediaries and
self-regulatory organizations in securities
market
 Organization of SEBI-Management of
the board
• Chairman
• Two members from among the officials of the
Ministries of central government dealing with
finance and law
• One member from officials of RBI
• Two other members to be appointed by
central government
Organization of SEBI-Departments
Department Responsibility
Primary Policy matters related to primary market, intermediaries
and self regulatory organizations ,readressal of investors’
grievances and guidance
Issue Registration , regulation and monitoring of the
management and intermediaries and scrutiny of offer document
intermediaries
Department
Secondary Market Policy matters related to major stock exchanges , price
Department monitoring market surveillance , prevention of insider
trading and brokers’ registration
Institutional Mutual Fund , FIIs, mergers, acquisitions
Investment
 SEBI’s Role In Primary Market
• Entry Norms
• Promoter’s Contribution
• Disclosure
• Book Building
• Allocation Of Shares
• Market Intermediaries
 SEBI’s Role In Secondary Market
• Governing Board
• Infrastructure
• Settlement and Clearing
• Debt Market Segment
• Price Stabilization
• Delisting
• Brokers and SEBI
• Insider Trading
 SEBI guidelines regarding Investors
Protection
• Office of investors assistance and education
• Launching of complaint redressal mechanism
• Displaying names of defaulting companies on SEBI
website
• Framing comprehensive rules for administration of
the investors protection and education funds
• Establishing a separate investment awareness
division
• Reaching out to the masses through investors
associations and NGOS
 SEBI guidelines regarding Investors
Protection
• Conducting financial literacy programmes for
school and college students
• Establishing NISM
 OPERATORS AT STOCK EXCHANGE
• JOBBER
• BROKER • TARAWANIWALS
• Professional
Independent operators • Commission agents
• Buy and sell for their •
own profit
•
Intermediaries
Buy and sell on behalf of
• Act as both
• Cannot deal on behalf
of public others jobbers and
• Can deal only with • Facilitate deals
brokers • Charge brokerage brokers
• Quotes both buy and
sell price • Does malpractice
• Provides a ready to earn profits
market when brokers
need to settle
position of their • Prohibited
clients
• Also called market
practice
maker
 TYPES OF INVESTOR
• Bull • Lame duck
• Bear • Stag

• Tejiwala • Trades • Kind of bear

• Expects frequently who has sold
• Mandiwala • Aims at making his shares,
price rise but is not
• Purchases • Expects
quick profits in
short run able to buy
shares price fall • Mostly buys back to meet
• Raises mkt. • Sells new company’s commitment
price shares and sells because
shares them
prices are
immediately
• Mkt. rising
prices fall
 Approaches of Security Analysis
• Fundamental Analysis

• Technical Analysis