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CAPITAL MARKETS OVERVIEW

- INDIA

RITESH NANDWANI
Faculty, NISM

May 24, 2018

 Disclaimer
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 This presentation constitutes an academic effort for a general

understanding of Indian Capital Markets
 The views expressed in the slides, presentation content and
discussion are that of the presenter and need not represent the
views of the organization
 No part of the presentation may be reproduced in any form in
print or digital copies or distributed through social media
applications in any manner
 Since data and pictures have been put together from various
sources, the audience is advised to refer to the original and
authoritative sources of such content/ data which may or may
not have been mentioned in the presentation
May 24, 2018
 Agenda
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 Regulatory Framework
 Role, Power & Functions of SEBI
 Market Participants
 Indian Securities Markets - Key Features
 Market Segments
 PrimaryMarkets
 Secondary Markets

 Mutual Funds
 Myths and Realities
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4 Regulatory Framework

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 Regulators in Financial Sector
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Securities
Market
Banking Insurance Pension

FINANCIAL MARKET
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 Securities & Exchange Board of India (SEBI)
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 Formed as an administrative
body under Ministry of
Finance in 1988

 Statutory status as an
Independent Regulator for
Securities Market through
the Act of Parliament on 04
April, 1992

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 Preamble of the SEBI Act, 1992
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Investor protection

Regulation of Development of
securities market securities market

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 Legal framework
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 SEBI Act, 1992

 Depositories Act, 1996
 Companies Act, 2013 (limited provisions)
 Relating to issue & transfer of securities
 Relating to listing requirements & minimum subscription
 Relating to disclosure requirements in prospectus
 Securities Contracts (Regulation) Act, 1956
 Rules, Regulations, Guidelines, Circulars
 Appellate Mechanism

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 Jurisdiction of SEBI
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Intermediaries registered with SEBI

Listed Companies & Companies seeking Listing

Any person involved in fraudulent practices like insider

trading, manipulation etc in securities market

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 Powers
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 Legislative
 Inspection / Investigation
 Surveillance
 Directions
 Enquiry / Adjudication
 Enforcement
 Suspension or cancellation

 Cease or desist

 Monetary penalty

 Prosecution

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 Functions
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 Regulation of securities market which includes:

 Registration of market participants

 Supervision & Surveillance

 Investigation & Enforcement

 Vetting of offer documents for offers made to public, schemes

of mutual funds
 Regulation of substantial acquisitions and takeovers

 Investor complaints redressal

 Promoting investor awareness and education
 Research
 Policy formulation, Global standards
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 Regulations for Investors and Issuers
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 (Prohibition of Fraudulent and Unfair Trade Practices

Relating To Securities Market) Regulations, 2003
 (Substantial Acquisition of Shares and Takeovers)
Regulations, 2011
 (Buy Back of Securities) Regulations, 1998
 (Issue of Capital and Disclosure Requirements),
Regulations, 2009
 (Issue of Sweat Equity) Regulations, 2002
 (Prohibition of Insider Trading) Regulations, 1992
 (Delisting of Equity Shares) Regulations, 2009
 (Informal Guidance) Scheme, 2003
https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=y
es&sid=1&ssid=3&smid=0 May 24, 2018
13 Market Participants

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 Market Participants
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 Issuers

 Investors

 Intermediaries

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 Market Intermediaries
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 Stock Exchanges
 Depositories
 Stock Brokers
 Depository Participants (DPs)
 Custodians

 Merchant Bankers
 Underwriters
 Registrar to Issue and Share Transfer Agents
 Debenture Trustees
 Credit Rating Agencies

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 Market Intermediaries (Contd.)
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 Foreign Institutional Investors

 Mutual Funds
 Portfolio Managers
 Alternate Investment Funds (AIFs)
 Collective Investment Schemes
 Real Estate Investment Trusts (REITs)
 Infrastructure Investment Trusts (InvITs)

 Investment Advisers (IAs)

 Research Analysts (RAs)

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 Summary & Details
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https://www.sebi.gov.in/sebiweb/other/OtherAction.do?doRecognised=yes

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18 Indian Securities Markets - Key Features

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 Indian Markets - Key Features

Features State of the Market

Regulator SEBI
Autonomous, Independent, Statutory body
Mandated to protect investors’ interest, develop and
regulate securities market

Stock Exchanges As front line regulators – BSE / NSE / RSE’s

Intermediaries Intermediaries registered and regulated by SEBI under

section 12 of SEBI Act (brokers, merchant bankers, RTI, STA
etc.)

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 Indian Markets - Key Features

Features State of the Market

Access to Market Paradigm shift – Merit to disclosures based regime.

Access to International Firms allowed to issue ADRs / GDRs and raise ECBs.
Market ADRs/GDRs have two way fungibility.

FIIs allowed to invest in Indian market.

MFs allowed to invest overseas.

Retail investors allowed to invest in IDRs

Corporate Compliance Emphasis on disclosures accounting standards and
corporate governance.

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 Indian Markets - Key Features

Features State of the Market

Pricing of Determined by market - Either by issuer through fixed price
Securities or by investors through book building

Fair system of proportionate allotment to retail investors

Trading On-line, Electronic,

Mechanism Anonymous
Fully-automated,
order matching on a price/time priority
Wide Reach with over 10000 terminals spread in over 400
cities in India and abroad
Low Transaction Cost

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 Indian Markets - Key Features

Features State of the Market

Clearing and Clearing House/Corporation provides full novation
Settlement Counterparty Risk is absent
System

Risk Management Comprehensive risk management system

Transfer of Transfers are recorded electronically in book entry form by

securities depositories
99% of Market Cap dematerialized
Mutual Funds Open to private sector. Variety of funds and products.

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 Indian Markets - Key Features

Features State of the Market

Products Available at the Equity
Exchanges Debt
Government Securities
Mutual Funds
Exchange Traded Funds
Stock Index Options & Futures
Single Stock Options & Futures
Interest Rate Derivatives
Currency Futures
Regulatory Competence SEBI vested with powers and systems to detect
misconduct and impose deterrent penalties

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24 Market Segments

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 Market Segments
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 Primary Markets

 Secondary Markets

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26 Primary Markets

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 Primary market
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 Market in which shares, debentures and other securities are

sold for the first time for collecting long-term capital
 Usually known as “Initial Public Offer” (IPO) Market
 Flow of funds is from savers to users/ borrowers
 Helps in capital formation

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 Primary Markets
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 New issues of financial instruments are offered for sale

Intermediaries Suppliers
Users of funds (Merchant Bankers,
Underwriters, of funds
(Corporate Issuers) Brokers, RTAs, etc.) (Investors)

Financial Instruments

Funds

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 Options for raising funds
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Various types of instruments

Debt Equity Hybrid

From Banks & FIs IPOs Various forms of

FPOs Convertibles
In India Public issue of
Rights Issue
Bonds/Debentures
Pref. Issue

Outside India ECBs ADR/GDRs FCCBs & FCEBs

ECB: External Commercial Borrowing

ADR/ GDR: American/ Global Depository Receipts
FCCB: Foreign Currency Convertible Bonds
FCEB: Foreign Currency Exchangeable Bonds
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 Fund raising - Life cycle
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Investors and Instruments issued depend on the option and stage of lifecycle
Depository Shares
Foreign Receipts with
Currency the underlying Strategic
Bond being Shares
DRs with convertible Investment
underlying into Shares
ADR Customer,
being Supplier,
Shares Competitor
FCCB
Shares US QIB
Shares /
GDR
PCD / FCD Hedge Funds, FPIs
QIP
Shares Rights FPIs
Shares /
Follow-on
Issue QIBs
Warrants /
FCD / PCD Public
Issue Existing Shareholders
Private FPIs, FI, Banks, Insurance Cos, MF,
Shares Placement HNI, Individuals including NR

Shares IPO Promoters, Fis,

Warrants / Strategic Investor
Shares Private FPIs, FI, Banks, Insurance
Equity Cos, MF, HNI, Individuals
Shares Venture
PE Funds including NR
Capital
Seed
Venture Capitalist IPO: Initial Public Offer
Capital QIP: Qualified Institutions Placement
Own funds, Family, GDR: Global Depository Receipts
FCCB: Foreign Currency Convertible Bond
Friends, Angel ADR: American Depository Receipts
Investors
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 Primary Markets - Resource Mobilization
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 Resource Mobilization - Equities
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2015-2016 2016-2017 April-Jan 2018

Type of Issuance No. of Amount No. of Amount No. of Amount
issues (INR cr) issues (INR cr) issues (INR cr)
Public 74 14,815 106 29,104 151 66,399
Rights 13 9,239 12 3,416 15 4,540
Total 87 24,054 118 32,520 166 70,939
Equity
QIP 24 14,588 21 13,371 41 58,520
Pref. 333 49,916 401 44,103 349 41,581
Total 357 64,504 422 57,474 390 1,00,101
Grand Total Equity 444 88,558 540 89,994 556 1,71,040

Source: SEBI

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33 Secondary Markets

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 Secondary Markets
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 Financial instruments already issued are traded

Securities
Investor Brokers Investor

Financial Instruments

Funds

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 Secondary Market - Segments
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 Cash Market
 Derivatives
 Debt
 Government Securities
 Corporate Debt

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 Clearing & Settlement Process
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 Clearing & Settlement Process
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 Settlement Cycle
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 Secondary Market - Key Statistics
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Source: SEBI
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 Secondary Market - Key Statistics
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Source: SEBI
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41

Thank You

May 24, 2018