UNIT-V STOCK MARKET IN INDIA The Indian stock market has become one of the most dynamic and

efficient securities market in Asia today. The Indian market now confirms to international standards in terms of operating efficiency. During the latter half of the 19th century, shares of companies used to be floated in India occasionally. There were stock brokers in Bombay who assisted in the floatation of shares of companies. A small group of stock broker in Bombay joined together in 1875 to form association called Native Shares and Stock brokers association. It was exchange in Asia. Ahmedabad was a major centre of cotton textile industry. After 1880 many new cotton textile mills were started in and around Ahmedabad. As new cotton textile enterprises were floated, the need for a stock exchange at Ahmedabad was strongly felt. Accordingly in 1894, the brokers of Ahmedabad formed the Ahmedabad share and stock brokers association, which later became the Ahmedabad Stock Exchange, the second stock exchange of the country. During the 1900 kolkata became another major centre of share trading on account of the starting of several indigenous industrial enterprises. As a result the third stock exchange of the country was started by the Kolkata stock brokers association in 1908. Yet another stock exchange was started in 1920 at Chennai. However, by 1923, it ceased to exist. Later in 1937, the madras stock exchange was reviewed as many new cotton textile mills and plantation companies were floated in south India. Three more stock exchanges were established before independence at Indore in Madhya Pradesh in this association later became the Bombay Stock Exchange which is oldest stock

1930, at Hyderabad in 1943 and at Delhi in 1947. Thus at the time of independence, seven stock exchanges were functioning in the major cities of the country. The number of stock exchanges virtually remained unchanged for nearly three decades from 1947 to 1977, except for the for the establishment of the Bangalore stock exchange in 1957. During the 1980’s however, many stock exchanges were established. Some of them were:  Cochin stock exchange (1978)  Uttar pradesh stock exchange ( At Kanpur, 1982)  Pune stock exchange ( 1982)  Ludhiana Stock exchange (1983)  Gauhati Stock exchange (1984)

 Kanara Stock exchange ( At mangalore in , 1985)  Magadh Stock echange ( at patna, 1986)  Jaipur stock exchange ( 1989)  Bhuvaneswar stock exchange (1989)  Saurashtra kutch stock exchange (at Rajkot in 1989)  Vadodara stock exchange (at Baroda, 1990) The number of stock exchanges increased to eighteen by 1990. Along with the increase in the number of stock exchanges, the number of listed companies and the capital of the listed companies have also grown especially after 1985. Two more stock exchanges were set up at Coimbatore and Meerut during the 1990s, taking the total twenty. Due to the functional inefficiency such as absence of liquidity, lack of transparency, undue delay in settlement of transaction, fraudulent practices etc., with the objectives of providing more efficient services to the investor, the country first electronic stock exchange which scrip less trading was set up In 1992 with the name of Over the Counter Exchange of India ( OTCEI). With liberalization of the Indian economy during the 1990’s it was inevitable that the Indian stock market trading system be raised to the level of international standards. The high powered committee on stock exchange known as Pherwani Committee recommended, in 1991, the setting up of new stock exchange as a model exchange and function As National Stock Exchange. The new stock exchange was set up in 1992 as National Stock Exchange. PRIMARY MARKET / NEW ISSUE MARKET. When a new company is floated , its shares are issued to the public in the primary market as an Initial Public Offer (IPO). If the company subsequently decides to include debt in its capital structure by issuing bonds or debenture, these may also be floated in the primary market. The functions of New Issue market are:  Origination  Underwriting  Distribution

Origination: It’s a preliminary work in connection with the floatation of new issue by a company. It deals with assessing the feasibility of the project, technical, economic and financial as also making all arrangements for the actual floatation of the issue. The origination includes the following the works are  Time of floatation the issue  Type of issue  Price of issue. The origination works in the new issue market being carried out by Merchant Bankers. In the 1990’s commercial banks in India created special divisions called merchant banking divisions to perform the origination work in the new issue market. Underwriting: Is the activity of providing a guarantee to the issuer to ensure successful marketing of the issue. An underwriter is an individual or institution which gives an undertaking to the stock issuing company to purchase a specified number of shares of the company in the event of unsold. The issuing company now can ensure full subscription to the new issue through underwriting agreement with different underwriter even if there is no proper response to the new issue. Distribution: The distribution function is carried out by brokers, sub - brokers and agent. New issue have to be published by using different mass media, such as newspaper, magazines, television, radio , internet etc.. Method of Floating of New Issue: There are three methods of floating new issue.  Public issue  Right issue  Private placement Steps in floating Public issue: There are three stages in successful completion of public issue.

 Pre-issue task  Opening and closing of the issue  Post issue task I-Pre-issue task:  Drafting and finalization of the prospectus  Selecting of intermediaries and entering into agreement with them (a). Merchant Bankers (b). Registrar to the issue (c ). Banker to the issue II – Opening and closing of the issue III- Post – issue task Derivatives: Forwards contract: Forwards contract are commitments entered into by two parties to exchange a specific amount of money for a particular good or services at specified future date. More informally, a forward contract may be described as an agreement to buy or sell an asset at a predetermined price and at a specified future time. Future contract: “A future contract , like a forward contract is an agreement between two parties to buy or sell an asset at a certain time in the future for a certain price”. While the forward contract are negotiated between the parties to the contract, future contract are normally traded on an organized or regulated exchange where traders used to assemble periodically on the floor of the exchange to buy or sell future contract generally by open outcry. Options: There are two types of stock options: Call option and put option. Call option : To provide the rights to buy a specified share at a specified price ( Known an Strike price or Exercise price) during a period of time.

Put option: A put option gives its holder the rights, but not the obligation, to sell shares at a specified price, prior to or on the expiry date of the option”. Leasing: Meaning: A lease may be defined as contractual arrangement / transaction in which a party owning an asset / equipment ( Lessor) provides the asset for use to another / transfer the rights to use the equipment’s to the user ( Lessee) over a certain period of time for consideration in form of return for periodic payment ( Rental) with or without further payment ( Premium). At the end of the period the equipment revert back to the owner unless there is provision of renewal of the contract. Essential Elements of the Leasing contract: Parties to the contract: There are essentially two parties involved namely lessor and lessee. Assets : It is subject matter of contract. The asset or equipment’s are to be leased out. Ownership separated from user: The ownership of asset vest with the lessor and its use is allowed to the lessee. On the expiry of the contract the asset revert to the real owner. Term of lease: Every lease should have a definite period otherwise it will be legally inoperative. Lease rental: The lessee to pay the rent to the lessor until the lease term is over. Modes of terminating the lease contract:  The lease is renewed on a perpetual basis  The asset revert to lessor  The asset reverts to the lessor and the lessor sells it over to third party.  The lessor sells the asset to the lessee.

Classification: 1. Finance lease or operating lease. The lessor transfer to the lessee, substantially all the risk and rewards incidental to the ownership of the asset whether or not the title is eventually transferred. It involves payment of rental over an obligatory non-cancellable lease period, sufficient in total to amortize the capital outlay of the lessor and leave some profit. The lessor is only a financier and is usually not interested in the assets. 2. Operating Lease: The lessor does not transfer substantially all the risks and rewards incidental to ownership. During the lease period the lessor provides services such as maintenance, repair, and technical advice. For this reason the operating lease is also called service lease. 3. Sales and Lease back lease and Direct lease: The owner of an equipment sells it to the leasing company which leases it back to the owner ( lessee). Direct lease: In this lease the lessee and owner of the equipment are two different entities. A direct lease can be two types: Bipartite, Tripartite lease. Bipartite lease: There are two parties in the lease transaction, namely (i) Equipment supplier cum lessor (ii) Lessee. Tripartite Lease: Three different parties involved in this lease. Equipment supplier, Lessor, Lessee. 4. Single investor lease and leveraged lease: Single investor lease: There are two parties to the lease transaction. The leasing company (lessor) funds the entire investment by an appropriate mix of debt and equity funds. Leveraged lease: There are three parties to the transaction lessor, Lender and lessee. The leasing company buys the asset through substantial borrowings with full recourse to the lessee and without any recourse to it. The lender obtains an assignment of lease and the rental to be paid by the lessee and first mortgaged assets on the leased asset. The transaction is routed through a trustee who looks after the interest of lender and lessor.

5. Domestic Lease and International Lease: Domestic lease: All parties to the agreement namely, equipment supplier, lessor, lessee are domiciled in the same country. International Lease: If the parties to the agreement are domiciled in different countries it known as international lease it is further classified in to Import lease: The lessor and lessee are domiciled in the same country but the equipment supplier is located in the host country. Cross border lease: when the lessor and lessee are domiciled in different countries is called cross border lease. HIRE-PURCHASE Meaning: Hire purchase is a mode of financing the price of goods to be sold on future date. In hirepurchase goods are let on hire, the purchase price is to be paid in installment and the hirer is allowed an option to purchase the goods by paying all the installments. Features:  Payment is made in installment over a specified period  The possession is delivered to the hirer at the time of entering in to the contract  The property in the goods passes to the hirer on payment of the last installment  Each Installment is treated as hire charge so that if default is made in payment of any installment the seller become entitled to take away the goods  The hirer / Purchaser is free to return the goods without being required to pay any further installment falling due after the return Hire- Purchase Vs Installment Purchase: (i).In installment sale , goods are delivered and the ownership is transferred to the buyer but the price of the goods is paid in specific installment over a definite period. To purchase the goods at any time during the term of agreement. Hire- Purchase: The hirer to terminate the agreement at any time before the last installment paid. (ii). The ownership is transferred in installment purchase at the time of entering in to the contract, but in the hire – purchase agreement the ownership is transferred only when the last installment is paid.

Lease Financing Vs Hire-Purchase Financing: (1).Ownership: The lessor is owner and the lessee is entitled to use the equipment. The ownership is never transferred to the lessee. The ownership is transferred to the hirer when the last installment is paid. (2).Depreciation: The depreciation is charged in the book of lessor. The depreciation shield on assets hired by the hirer (3).Magnitude: Both lease finance and hire-purchase are generally used for capital goods. However the magnitude of funds involved in the lease is very large as the purchase of aircraft, ships, machinery, airconditioned plant and so on. The cost of acquisition in hire-purchase is relatively low, that is automobile, office equipment etc… (4). Extent: Lease financing is invariably 100 percent financing. It requires no margin money. But the hire-purchase finance the hirer to pay margin money some 20% to 25 % to the seller. (5). Maintenance: The cost of maintenance of hired asset is to be borne typically by the hirer himself. In case of finance lease only, the maintenance of the leased assets is the responsibility of lessee. It is lessor (Seller) who has to bear the maintenance cost in operating lease. (6). Tax Benefit: The tax benefit goes to the lessor in the case of operating lease, but in financial lease the tax benefit goes to lessee as he taken entire risk and expenditure on maintenance. In hire purchase transaction the tax benefit goes to hirer as he may the real owner when the last installment paid.

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