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Indian Capital Market

Organized Indian Financial System


Financial Instruments

Financial Markets

Financial Intermediaries

Forex Market

Capital Market

Money Market

Credit Market

Primary Market Secondary Market

Money Market Instrument

Capital Market Instrument

Money Market Vs Capital Market
• • • •

It is for short term Supplies funds for WC Instruments are T-bill, CM, etc Each single instrument is of large amount Central bank and Commercial banks are major.

It is for long term Supplies funds for fixed capital requirement Instruments are shares, debentures, etc. Each single instrument is of small amount Development bank and insurance companies are major.

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These instruments do not have secondary market. Transactions are on over phone and no formal place Transaction without the help of broker.

These instruments have secondary market. Transactions are at formal place. Eg stock market. Transaction have to be conducted with the help of broker.


Why Capital Markets Exist • • • Capital markets facilitate the transfer of capital (i. financial) assets from one owner to another. – Liquidity refers to how easily an asset can be transferred without loss of value. .e. They provide liquidity. A side benefit of capital markets is that the transaction price provides a measure of the value of the asset.

Role of Capital Markets • • • • • • Mobilization of Savings & acceleration of Capital Formation Promotion of Industrial Growth Raising of long term Capital Ready & Continuous Markets Proper Channelisation of Funds Provision of a variety of Services .

lowering settlement timings and .lowering transaction costs .Functions of a capital market • • • • • Disseminate information efficiently Enable quick valuation of financial instruments –both equity and debt Provide insurance against market risk or price risk Enable wider participation Provide operational efficiency through -simplified transaction procedure .

•Develop integration among -real sector and financial sector -equity and debt instruments -long term and short term funds -Private sector and government sector and -Domestic funds and external funds •Direct the flow of funds into efficient channels through -investment -disinvestment -reinvestment .

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 .

300 cr per day No settlement guarantee mechanism .Indian Capital Market Historical perspective • • • • • Stock Market was for a privileged few Archaic systems .less than Rs.High risks .Out cry method Lack of Transparency .High tones costs No use of Technology Outdated banking system • • Volumes .

Major Stocks move to Rolling Sett 2003.over 80% trades in Demat form 2001.Indian Capital markets Chronology • • • • • • • • 1994-Equity Trading commences on NSE 1995-All Trading goes Electronic 1996.T+2 settlements in all stocks 2003 .Globalisation 2000.Demutualisation of Exchanges .Depository comes in to existence 1999.FIIs Participation.

Reforms • • • • • • • • Each scam has brought in reforms .Capital Markets .1992 / 2001 Screen based Trading through NSE Capital adequacy norms stipulated Dematerialization of Shares .risks of fraudulent paper eliminated Entry of Foreign Investors Investor awareness programs Rolling settlements Inter-action between banking and exchanges .

The corporate sector is increasingly depending on external sources for meeting its funding requirements. A growing number of companies have been accessing the securities market rather than depending on loans from financial institutions / banks. .CAPITAL MARKET REFORMS IN INDIA • • • The 1990s have witnessed the emergence of the securities market as a major source of finance for trade and industry in India.

Reforms / Initiatives post 2000 • • • • • • • Corporatisation of exchange memberships Banning of Badla / ALBM Introduction of Derivative products .electronic contracts Margin Lending Securities Lending .Index / Stock Futures & Options Reforms/Changes in the margining system STP .

MARKET STRUCTURE (JULY 31. 96 Portfolio Managers • 83 Registrars & Transfer Agents. • 9108 Stock Brokers and 14582 Sub brokers • 9644 Listed Companies • 2 Depositories and 483 Depository Participants • 128 Merchant Bankers. 59 Underwriters • 34 Debenture Trustees. 59 Bankers to Issue • 4 Credit Rating Agencies . 2005) • 22 Stock Exchanges. • Over 10000 Electronic Terminals at over 400 locations all over India.

Indian Capital Market Market Instruments Intermediaries Regulator SEBI Primary Secondary •Brokers •Investment Bankers •Stock Exchanges •Underwriters Hybrid Debt Equity Players CRA Corporate Intermediaries Individual Banks/FI FDI /FII .

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 .

) Capital per Listed Cos.Sl. No. (Cr. of Listed Cos. of Stock Exchanges No.) 270 753 1812 2614 3973 9723 32041 59583 Market value of Capital of Listed Cos. 1 2 3 4 5 As on 31st December Growth Pattern of the Indian Stock Market 1946 7 1125 1506 1961 7 1203 2111 1971 8 1599 2838 1975 8 1552 3230 1980 9 2265 3697 1985 14 4344 6174 1991 20 6229 8967 1995 22 8593 11784 No. Rs.N o. of Stock Issues of Listed Cos. Capital of Listed Cos. (Lakh Rs. (4/2) (Lakh Rs. (Cr.) (5/2) Appreciated value of Capital per 971 1292 2675 3273 6750 25302 11027 9 514 47812 1 693 6 24 63 113 168 175 224 86 107 167 211 298 582 1770 5564 7 358 170 148 126 170 260 344 803 8 . Rs.) Market Value of Capital per Listed Cos.

Participants issuer investors intermediaries .Primary Market • • • Market for new issues/fresh capital (IPO’s) New issues mkt.

Mobilization of funds - Prospectus Right issues and Private placement .

promoter and merchant banker together decide the price of the issue.Regulator of new issues was CCI (Controller of Capital Issues) • Approval from CCI for raising funds in primary mkt.Free pricing regime • Before 1992. • . quantum .and pricing of the issue were decided by the controller • • New co.s can issue shares only at par Existing companies with substantial reserves could issue shares at premium • • Fixed price mechanism resulted in under pricing of many issues After 1992. Timing.

Fixed price mechanism of new issue • • • • • • CCI regime To offer share at a fixed price Firm and merchant banker decide an offer price Investor opinion wasn’t considered while setting offer price Long time lag among the date of pricing.and the date when trading commences Raises possibility of price fluctuations in intervening period . the date the issue opens .

Book Building-A new issue mechanism in India • • mechanism through which an offer price for IPOs based on investor’s demand is determined . Auction of shares .

Appointment of book runner i.e. 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 .Book building process 1. merchant banker Preparation and submission of draft documents to SEBI and obtaining of an acknowledgement card.Adv. 4. 3. 5. 2. A specified price band (range) is to be determined by issuer and book runner Different price levels are invited from syndicate members .

Placement portion closes a day before the opening of public issue portion . 6..Placement portion opens for subscription 9. Final prospectus is filed with the (ROC) along with procurement agreement 8.Issuer and book runner may impose restrictions on number of shares that can be allotted to each client 7.Contd….

Public portion (net offer to the public) • 100% book building • .Book building options 75% book building Issue can be categorized into -placement portion .

of investors invited to apply are limited Lack of transparency Not proved to be good price discovery mechanism Lag time of more than 60 days between issue pricing and listing Issuer may have to sell cheap due to collective bargaining High institution holding may affect stock’s liquidity Volatility may increase due to bulk offloading .Limitations of book building method • • • • • • • • • No road shows done Still dependent on good faith No.

Distinction between Primary and Secondary Market • • • Functional differences Organizational differences Nature of contributions to industrial finance .

Secondary Market Secondary/Stock market!!!! .


How does the stock market function? •Stock exchanges •Brokers •Registrars •Depositories and their participants •Securities and Exchange Board of India (SEBI) Financial Regulators •SEBI •RBI •Ministry of finance .

The role of the stock exchange • Corporate governance Creates investment opportunities for small investors Government raises capital for development projects Barometer of the economy • • • .

To promote Research and Investigation • .Functions Of SEBI • Regulates Capital Market. • Checks Trading of securities. Checks the malpractices in securities market. • • • It regulates the stockbrokers and sub-brokers. It enhances investor's knowledge on market by providing education.

Functions Of RBI Monetary Authority: Issuer of currency: Regulator and supervisor of the financial system: Authority On Foreign Exchange: Developmental role: Related Functions: .

• Depends on demand and supply for that stock.WHY STOCK PRICE RISES? The price of every stock increases or decreases for the following possible reasons: • News about company. . • News about the country. • Exchange rate regime.

•Big irrational greed. •Volatility of the market has increased over the years. . •Structural and organisational imbalance in the growth of the stock market.DRAWBACKS OF INDIAN STOCK MARKET: •Unethical practices. •Lack of protection to interests of the genuine and small investors . excessive speculation. •Trading is extremely thin and restricted.

Diversification . profound knowledge. Portfolio management. . Best guess.HOW TO MAKE MONEY FROM CAITAL MARKET? patience.

Indian Capital Market deficiencies • • • • • Lack of transparency Physical settlement Variety of manipulative practices Institutional deficiencies Insider trading .