FINANCIAL SERVICES

INDUSTRY
Hedge Equities Ltd

KATTA ASHISH
Contents
Financial Services Industry...........................................................................................................................1
Business size................................................................................................................................................1
Importance and role:.....................................................................................................................................1
Banking Financial Services..........................................................................................................................2
Investment banking..................................................................................................................................2
Commercial Banking:...............................................................................................................................2
Financial Intermediaries:..............................................................................................................................3
Financial Institutions....................................................................................................................................3
Financial Markets...........................................................................................................................................4
Indian financial market:................................................................................................................................5
Classification of Financial markets:..............................................................................................................5
Money Market................................................................................................................................................5
Capital Market...............................................................................................................................................6
Types of Money market instruments: -.............................................................................................................7
Capital market importance............................................................................................................................8
Indian capital market vs. Global capital market.........................................................................................8
Primary Market..............................................................................................................................................9
IPO............................................................................................................................................................9
FPO........................................................................................................................................................10
Secondary market.........................................................................................................................................12
Stock exchange: -.......................................................................................................................................12
Corporate action...........................................................................................................................................13
Broking firms vs. Wealth management firms vs. AMCs...........................................................................16
Growth of financial services industry.........................................................................................................17
1
Page
Financial Services Industry

India has a diversified finance industry that is experiencing rapid expansion, both in terms of the
fast growth of existing financial services firms and new business entrants.  The industry comprises
commercial banks, insurance companies, financial non-banking financial companies, cooperatives,
pension funds, mutual funds and other smaller financial entities. The banking regulator has recently
approved the formation of new entities such as payment banks, thereby adding to the categories of
entities that operate in the sector. Though, India's finance market is primarily a banking sector with
commercial banks holding for over 64 per cent of the financial system's total assets.

Business size

The AUM of the MF industry increased in October 2014 from Rs 10.96 trillion (US$ 156.82
billion) to Rs 26.33 trillion (US$ 376.73 billion) in October 2019.

The insurance sector is another critical part of India's finance industry. The insurance industry
expanded at a rapid rate. The gross premium for the first year of life insurance companies was Rs
214,673 crore (US$ 30.72 billion)

The demand for Initial Public Offerings (IPOs) has also seen significant growth alongside the
secondary sector. In FY19, out of Initial Public Offerings (IPOs) was received Rs 14,674 crore
(US$ 2.10 billion).

In addition, India's leading stock exchange Bombay Stock Exchange (BSE) will create a joint
venture with Ebix Inc to develop a large insurance distribution network from a new distribution
exchange platform.

Importance and role:

It is the presence of financial services that enables a country to improve its economic condition
whereby there is more production in all the sectors leading to economic growth.

The benefit of economic growth is reflected on the people in the form of economic prosperity
wherein the individual enjoys higher standard of living. It is here the financial services enable an
individual to acquire or obtain various consumer products through hire purchase. In the process,
2

there are several financial institutions which also earn profits. The presence of these financial
Page

institutions promote investment, production, saving etc.

 Banking Financial Services:

Banking is an essential part of every successful business. They accumulate the idle savings of the
people and make them available for the investment. It is important to know what the benefits and
services are of your banking institution so you can make the most out of your business income.
There are two types of banking activities they are:

Investment banking:

Investment banks provide services and advice to corporations, investors, and other individuals or
institutions. These services are generally based on the intermediation between issuers of capital and
providers of capital, and include financial products ranging from debt or equity issuance to advice
on mergers and acquisitions.

 Capital Markets: Advising business on a variety of ways to access financial markets,

usually coordinating between corporate finance, sales & trading, and research.

 Mergers and Acquisitions: Assisting buyers or sellers of businesses with deal execution,
advising on the strategy, timing, value, and terms associated with such transactions.

 Public Finance: Assisting municipalities and other public-sector entities with their
financing needs.

 Sales/Trading: On behalf of clients or using the bank's own capital, selling, buying and
structuring financial products.

 Research: Providing industry, company, or product analysis to investors, typically in

support of sales & trading and wealth management areas.

Commercial Banking:

Commercial banks are typically in the business of taking deposits and making loans using their own
capital. Such loans are offered to both businesses and individuals, and there are a number of related
3

activities in support of the commercial banking product

Page
 Relationship Management:  Interacting with corporate, small business or individual clients
to market the bank's products and make sure client needs are addressed.

 Structuring/Underwriting: Using the bank's resources to package loans or related financial

products for clients, making sure that capital risks are adequately mitigated.

 Syndication & Sales: Offloading all or parts of underwritten loans to other financial

institutions, in support of structuring/underwriting and relationship management.

 Risk Management: Assisting clients and working with bank's internal resources to help
manage interest rate, foreign exchange and other market price exposure.

 Cash Management: Assisting corporations with the flows and short-term investment of

cash balances.

 Retail Banking: Working with individuals and small businesses to address their banking
needs at the branch level.

Financial Intermediaries:

A financial intermediary is an organization that works as a middleman in a financial exchange

between two parties, such as a commercial bank, hedge bank, mutual fund or pension fund.
Financial intermediaries give the average customer a range of benefits including stability, liquidity
and economies of scale involved in banking and asset management.

While technological developments threaten to replace the financial intermediary in some fields,
such as lending, disintermediation is much less of a challenge in other fields of finance, including
banking and insurance.

Financial Institutions:

A financial institution is a company involved in dealing with financial and monetary transactions
such as deposits, lending, savings, and trade of money. Financial companies provide a broad variety
of financial services sector activities from banks, securities agencies, insurance firms, brokerage
firms, and investment dealers. Virtually everyone living in a developed economy is in constant, or
4

at least periodic, need of financial institutions 'services.

Page
Financial institutions offer a wide range of products and services for individual and commercial
clients. The specific services offered vary widely between different types of financial institutions.
 Commercial banks
 Investment banks
 Insurance companies
 Brokerage firms

Financial services offered by various financial institutions are

 Factoring.
 Leasing.
 Forfaiting.
 Hire Purchase Finance.
 Credit card.
 Merchant Banking
 Book Building.
 Asset Liability Management.
 Housing Finance.
 Portfolio Finance.
 Underwriting
 Credit Rating
 Interest & Credit Swap.
 Mutual Fund

Financial Markets
Stock markets generally refer to any marketplace where equity dealing exists including, though not
limited to, the stock exchange, debt exchange, forex market and derivatives market. Capital markets
are essential to the proper functioning of capitalist economies

One of the important requisites for the accelerated development of an economy is the existence of a
dynamic financial market. A financial market helps the economy in the following manner.
5
Page
 Saving mobilization: Obtaining funds from the savers or surplus units such as household
individuals, business firms, public sector units, central government, state governments etc. is an
important role played by financial markets.
 Investment: Financial markets play a crucial role in arranging to invest funds thus collected
in those units which are in need of the same.
 National Growth: An important role played by financial market is that, they contributed to a
nation’s growth by ensuring unfettered flow of surplus funds to deficit units. Flow of funds for
productive purposes is also made possible.
 Entrepreneurship growth: Financial market contributes to the development of the
entrepreneurial claw by making available the necessary financial resources.
 Industrial development: The different components of financial markets help an accelerated
growth of industrial and economic development of a country, thus contributing to raising the
standard of living and the society of well-being.
Indian financial market:

The financial market in India at present is more advanced than many other sectors as it became
organized as early as the 19th century with the securities exchanges in Mumbai, Ahmedabad and
Kolkata. In the early 1960s, the number of securities exchanges in India became eight - including
Mumbai, Ahmedabad and Kolkata. Apart from these three exchanges, there was the Madras,
Kanpur, Delhi, Bangalore and Pune exchanges as well. Today there are 23 regional securities
exchanges in India. The Indian stock markets till MONTH have remained stagnant due to the rigid
economic controls.

Indian financial market helps in promoting the savings of the economy –helping to adopt an
effective channel to transmit various financial policies. The Indian financial sector is well
developed, competitive, efficient and integrated to face all shocks. In the Indian financial market,
there are various types of financial products whose price are determined by the numerous buyers
and sellers in the market. The other determined factor of the price of the financial products is the
market forces of demand and supply. The various types of Indian market help in the functioning of
the wide Indian financial sector.

Classification of Financial markets:

It is divided into Organised and unorganised and further organised is sub-divided into 2 types they
6
Page

are:
  Money market
 Capital market

Money Market:

The money market is a safe place to store cash for people, banks, other companies, and
governments for a limited period, usually one year or less. It operates in such a manner that
companies and governments that need cash to run can easily access money at fair expense, and so
companies that have more cash than they need can use it. The instruments used in the money
markets include deposits, collateral loans, acceptances, and bills of exchange. Institutions operating
in the money markets include the Federal Reserve, commercial banks, and acceptance houses.
 Call Money: Call money is mainly used by the banks to meet their temporary requirement of
cash. They borrow and lend money from each other, normally daily. It is repayable on demand
and its maturity period varies in between one day to a fortnight. The rate of interest paid on call
money loan is known as the call rate.
 Treasury Bill: A treasury bill is a promissory note issued by the RBI to meet the short-term
requirement of funds. Treasury bills are highly liquid instruments, which means, at any time the
holder of treasury bills can transfer or get it discounted from RBI. These bills are normally
issued at a price less than their face value and redeemed at face value. So the difference
between the issue price and the face value of the treasury bill represents the interest on the
investment. These bills are secured instruments and are issued for a period of not exceeding
364 days. Banks, Financial institutions, and corporations normally play a major role in the
Treasury bill market
 Commercial Paper: Commercial paper (CP) is a popular instrument for financing the working
capital requirements of companies. The CP is an unsecured instrument issued in the form of a
promissory note. This instrument was introduced in 1990 to enable corporate borrowers to raise
short-term funds. It can be issued for a period ranging from 15 days to one year. Commercial
papers are transferable by endorsement and delivery. The highly reputed companies (Blue Chip
companies) are the major player of commercial paper market
 Certificate of Deposit: Certificate of Deposit (CDs) are short-term instruments issued by
Commercial Banks and Special Financial Institutions (SFIs), which are freely transferable from
one party to another. The maturity period of CDs ranges from 91 days to one year. These can
7

be issued to individuals, co-operatives, and companies.

Page
 Trade Bill: Normally, the traders, buy goods from the wholesalers or manufactures on credit.
The sellers get payment after the end of the credit period. But if any seller does not want to wait
or in immediate need of money, he/she can draw a bill of exchange in favor of the buyer. When
a buyer accepts the bill, it becomes a negotiable instrument and is termed a bill of exchange or
trade bill. This trade bill can now be discounted with a bank before its maturity. On maturity,
the bank gets the payment from the drawee, i.e., the buyer of goods. When trade bills are
accepted by Commercial Banks, it is known as Commercial Bills. So, the trade bill is an
instrument, which enables the drawer of the bill to get funds for a short period to meet the
working capital needs.

Capital Market:
The financial market is the location of exchange in securities and bonds. The hour-to-hour activities
are continuously watched and evaluated for hints to the economic condition of the country, the state
of rising sector within it, and support for the short-term future. The primary aim of corporate
institutions joining the financial markets is to raise funds for their long-, which typically result in
extending their enterprises and increasing their profits. They do this by issuing stock shares and by
selling corporate bonds.

The capital market may be further divided into:

 Industrial securities market

 Govt. securities market and
 long-term loans market.

Types of Money market instruments: -

Government Securities:
A Government Security (G-Sec) is a tradeable instrument issued by the Central Government or the
State Governments. It acknowledges the Government’s debt obligation. Such securities are short
term (usually called treasury bills, with original maturities of less than one year) or long term
(usually called Government bonds or dated securities with original maturity of one year or more). In
India, the Central Government issues both, treasury bills and bonds or dated securities while the
State Governments issue only bonds or dated securities, which are called the State Development
Loans (SDLs). G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged
8
Page

instruments.
Treasury Bills (T-Bills) :

Issued by the Central Government, Treasury Bills are known to be one of the safest money market
instruments available. However, treasury bills carry zero risk. I.e. are zero risk instruments.
Therefore, the returns one gets on them are not attractive. Treasury bills come with different
maturity periods like 3-month, 6-month and 1 year and are circulated by primary and secondary
markets. Treasury bills are issued by the Central government at a lesser price than their face value.
The interest earned by the buyer will be the difference of the maturity value of the instrument and
the buying price of the bill, which is decided with the help of bidding done via auctions. Currently,
there are 3 types of treasury bills issued by the Government of India via auctions, which are 91-day,
182-day and 364-day treasury bills.

Certificate of Deposits (CDs)

A Certificate of Deposit or CD, functions as a deposit receipt for money which is deposited with a
financial organization or bank. However, a Certificate of Deposit is different from a Fixed Deposit
Receipt in two aspects. The first aspect of difference is that a CD is only issued for a larger sum of
money. Secondly, a Certificate of Deposit is freely negotiable. First announced in 1989 by RBI,
Certificate of Deposits have become a preferred investment choice for organizations in terms of
short-term surplus investment as they carry low risk while providing interest rates which are higher
than those provided by Treasury bills and term deposits. Certificate of Deposits are also relatively
liquid, which is an added advantage, especially for issuing banks. Like treasury bills, CDs are also
issued at a discounted price and their tenor ranges between a span of 7 days up to 1 year. However,
banks issue Certificates of Deposits for durations ranging from 3 months, 6 months and 12 months.
They can be issued to individuals (except minors), trusts, companies, corporations, associations,
funds, non-resident Indians, etc.

Capital market importance

The capital market plays an important role immobilising saving and channel is in them into
productive investments for the development of commerce and industry. As such, the capital market
helps in capital formation and economic growth of the country. We discuss below the importance of
capital market.

The capital market acts as an important link between savers and investors. The savers are lenders of
9

funds while investors are borrowers of funds. The savers who do not spend all their income are
Page

called. “Surplus units” and the borrowers are known as “deficit units”. The capital market is the
transmission mechanism between surplus units and deficit units. It is a conduit through which
surplus units lend their surplus funds to deficit units.

Funds flow into the capital market from individuals and financial intermediaries which are absorbed
by commerce, industry and government. It thus facilitates the movement of stream of capital to be
used more productively and profitability to increases the national income.

Indian capital market vs. Global capital market

INDIAN CAPITAL MARKET GLOBAL CAPITAL MARKET

Access to Indian markets only. Access to different markets around the world.

Exposures of Indian markets are highly risky. Exposures of global markets are less risky.
Inflation is high in Indian markets Inflation is less in global markets
Small Change in global capital market would Change in Indian capital markets will not
result in changes in Indian capital markets. make much changes in global capital markets.

Primary Market

It is also known as the New Issue Market which is a part of the capital market that deals with the
issue of new securities to investors directly by the issuers. Here, the investors buy securities that
were never traded before.

The securities are issued for the first time by the companies in order to raise capital, also known as
Initial Public Offering. Companies, government or public sector institutions can obtain funds
through the sale of a new stock or bond issues through the primary market. The primary market
creates new securities and offers them for sale to the public.

The issue can be in the form of a public issue, private placement, preferential issue, rights, and
bonus issue.

A public issue does not limit anyone (individual, organization, or corporate) in investing, while in
private placement, the issuance is done to select a number of people.
10
Page
IPO:  IPO is an abbreviation of Initial Public Offer; it is when a company makes a fresh issue of
securities to the general public for the first time.

SBI CARDS: -
Issue Open Date 02-Mar-20

Issue Close date 05-Mar-20

Basis of Allotment 11-Mar-20

Refunds 12-Mar-20

Credit To Demat Account 13-Mar-20

Listing Date 16-Mar-20

11
Page
Open price = 613.80

Previous close = 608.05

Bid price =590.25

FPO: FPO is an abbreviation of Follow on Public offer, it is when a public limited company that is
already listed on exchanges issue additional shares to the general public.

ITI:-

A recent FPO was ITI FPO who’s listing date was 05-20-2020, offer price was 59.6, current price is
60.15

LISTIN
OFFE
CLOS LISTIN CURRE CHAN HOLDI G
NAME OF R
E G NT GE ABS NG PRICE
IPO PRIC
DATE DATE PRICE % PERIOD CHAN
E
GE %

SBI Cards &

05-03- 16-03-
Payment 755 590.25 2.93 33 10.7
2020 2020
Services Ltd.

Hind
Prakash 17-01- 27-01-
40 41 0 81 0
Industries 2020 2020
Ltd.

Vaxtex 03-01- 13-01-

24 21.1 0 95 12.45
Cotfab Ltd. 2020 2020

Prince Pipes
20-12- 30-12-
& Fittings 178 98.7 3.05 109 38.31
2019 2019
Ltd.

DC Infotech
and 18-12- 27-12-
12

45 39 0 111 14.29
Communicat 2019 2019
Page

ion Ltd.
Ujjivan
Small 04-12- 12-12-
37 27.6 0.55 125 53.02
Finance 2019 2019
Bank Ltd.

Market
Company Last % 52 wk 52 wk
Cap
Name Price Chg
High Low (Rs. cr)

ICICI
278.4 -0.66 524.75 191 8,968.42
Securities

1,442.0
MCX India 987.35 -3.49 761.7 5,035.32
0

India bulls
102.35 -3.94 362 81.3 4,764.69
Vent

Dolat
35.7 1.28 84 27.45 628.32
Investment

Geojit Fin 18.6 0.27 44.5 15 443.24

5paisa Capita 113.7 -3.32 270.95 93.05 289.68

Share India
48.3 -11.13 90 36.15 154.11
Sec

Choice
75 0.2 98.3 35.05 150.04
Internat
13
Page
Secondary market
Secondary market is the market where previously issued securities, such as stocks and bonds, are
traded among investors. It is also the market where investors buy securities from other investors,
and not from the issuing organization. The sale proceeds from the secondary market go to the
investor, and not the issuing company. A primary market, on the other hand, is the place where the
securities are given by the issuing organization for the first time and the proceeds go towards the
capital of that organization.

Stock exchange: -
The secondary tier of the capital market is what we call the stock market or the stock exchange. The
stock exchange is a virtual market where buyers and sellers trade in existing securities. It is a
market hosted by an institute or any such government body where shares, stocks, debentures, bonds,
futures, options, etc are traded.

A stock exchange is a meeting place for buyers and sellers. These can be brokers, agents,
individuals. The price of the commodity is decided by the rules of demand and supply. In India, the
most prominent stock exchange is the Bombay stock exchange. There are a total of twenty-one
stock exchanges in India.

Some of the Indian stock Exchanges: -

 NSE: - National Stock Exchange

 BSE: - Bombay Stock Exchange
 MCX: -Multi Commodity Exchange
 MSE: - Metropolitan Stock Exchange

Corporate action
Corporate actions are actions taken by a company that impact the shareholders’ value directly. It is
an event that brings material changes to a company and affects its stakeholders. These may be either
14

monetary e.g. dividend, or non-monetary e.g. Bonus, rights, or stock splits.

Page
Corporate actions include stock splits, dividends, mergers and acquisitions, rights issues and spin-
offs. All of these are major decisions that typically need to be approved by the company's board of
directors and authorized by its shareholders.

A cash dividend is a common corporate action that alters a company's stock price. A cash dividend
is subject to approval by a company's board of directors, and it is a distribution of a company's
earnings to a specified class of its shareholders. For example, assume company ABC's board of
directors approves a $2 cash dividend. On the Ex-dividend date, company ABC's stock price would
reflect the corporate
Vesuvius action and 87.4
India Final would be 24-02-2020
$2 less than its previous closing price.
22-04-2020
2020

09-04-
DIC India Final 45 12-02-2020 08-04-2020
2020

Ambuja 07-04-
Final 75 20-02-2020 03-04-2020
Cements 2020

Company Face Value Face Value

Name Record Date Split Date Before() After()

Madhav
Infra 28-Apr-20 27-Apr-20 10 1
Projects Ltd

Bajaj Steel
Industries 26-Mar-20 24-Mar-20 10 5
Ltd
15
Page
 Arnold
19-Mar-20 18-Mar-20 2 10
Holdings Ltd

Sun care
09-Mar-20 06-Mar-20 10 2
Traders Ltd

RSD
12-Feb-20 11-Feb-20 10 5
Finance Ltd

Thinkink
07-Feb-20 06-Feb-20 1 5
Picturez Ltd

Vinati
06-Feb-20 05-Feb-20 2 1
Organics Ltd

Security &
Intelligence
16-Jan-20 15-Jan-20 10 5
Services
India Ltd

Swadeshi
10-Jan-20 09-Jan-20 10 1
Polytex Ltd

Bonus shares are additional shares given to the current shareholders without any additional cost,
based upon the number of shares that a shareholder owns. These are company's accumulated
earnings which are not given out in the form of dividends, but are converted into free shares.

DATE
Bonus
COMPANY Ex-
Ratio Announcement Record
Bonus

Tiaan 23-04-
01:04 06-03-2020 24-04-2020
Ayurvedic 2020

13-04-
Veeram Sec 134:100 26-02-2020 15-04-2020
2020
16

30-03-
Junction Fabric 01:02 17-02-2020 01-04-2020
Page

2020
 26-03-
Palm Jewels 36:100 10-02-2020 27-03-2020
2020

Aakash 26-03-
01:02 08-02-2020 27-03-2020
Explorat 2020

Karnataka 17-03-
01:10 27-01-2020 18-03-2020
Bank 2020

A spin-off occurs when an existing public company sells a part of its assets or distributes new
shares in order to create a new independent company. Often the new shares will be offered through
a rights issue to existing shareholders before they are offered to new investors. A spin-off could
indicate a company ready to take on a new challenge or one that is refocusing the activities of the
main business.

A company implementing a rights issue is offering additional or new shares only to current
shareholders. The existing shareholders are given the right to purchase or receive these shares
before they are offered to the public. A right issue regularly takes place in the form of a stock split,
and in any case can indicate that existing shareholders are being offered a chance to take advantage
of a promising new development.

Rights DATE
Company FV Premium
Ratio Announcement Record Ex-Rights

17-03-
AFL 16:47 4 146 17-12-2019 18-03-2020
2020

Arrow 12-02-
01:05 10 26 07-09-2019 13-02-2020
Greentech 2020

11-02-
Brooks Labs 09:20 10 10 11-06-2019 12-02-2020
2020

Bajaj 0.6236111 05-02-

2 308 06-01-2020 06-02-2020
Electric 1 2020
17
Page
Broking firms vs. Wealth management firms vs. AMCs

criteria Broking firm Wealth management AMCs

firms
Meaning Financial institutions Refers to the Refers to the
that help you buy management of all management of
and sell securities. financial aspects of assets of a client.
the client.
Focus Researches markets Wider focus Narrower focus, a
to make includes asset subset of wealth
recommendations management and management.
for their clients, as financial planning.
well as stock and
bond trades.
Functions They act as the Include management Include management
middleman between of investments/assets of
companies selling and portfolios, tax investments/assets-
stocks and planning, education analyzing past and
individuals wishing planning, legacy current data, risk-
to purchase them. planning, estate return analysis,
planning, insurance, projection, strategy
charitable formulation for asset
contribution, management,
retirement planning. identification of
“suitable” assets.
Registration Usually registered as Usually registered as Usually registered as
brokers. investment advisors. broker-dealers.
Responsibility Providing regular “Fiduciary” Required to offer
updates to clients responsibility to put products “suitable”
regarding the status client interest before for the client.
of their investment self.
portfolios.
Compensation terms They charge Retainer fee based Usually, commission
18

commission on each along with a fee for based for product

Page

purchase and sale an asset under sales which may

 which they execute. management which give rise to a conflict
favors impartiality in of interest.
recommendations.
Examples Fidelity JPMorgan HDFC Mutual Fund,
SBI Mutual Fund.

Growth of financial services industry

India’s Financial services industry has been growing well in the last few years, just in the last few
months due to coronavirus, growth has gone down. According to various reports of analysts, the
industry will be improving over the next few years, and India is set to be a leader in Financial
services market by next 10 years.

19
Page