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International Equity Markets

• Ashish- 110
• Eti- 117
• Neel- 137
• Parvinder- 139
• Pranav- 141
• Ronak- 148
Primary Market

https://www.youtube.com/watch?v=11dsrhWmvaQ
Meaning
• A Primary Market is a part of the Capital Market that deals with
issuing of new securities.
• It is also known as “New Issue Market”
• Companies, governments or public sector institutions can obtain
funds through sale of a new stock or bond issues through Primary
Market. This is done through an investment bank or finance
syndicate of security dealers
Features of the Primary Market
• This is the market for new long term equity capital
• The Primary Market is a market where the securities are sold for
the first time
• In a Primary issue, the securities are issued by the company
directly to investors
• The Company receives the money and issues new security
certificates to investors
• Primary issues are used by companies for the purpose of setting up
new business or for expanding or modernizing the existing
business
• The new issue market does not include certain other sources of new
long term external finance
• Borrowers in the new issue market may be raising capital for
converting private capital into public capital this is known as
public group
Primary Market Method of Issue
IPO
IPO is the first sale of stock by a company to the public
Parties Involved in IPO
Primary Criteria For IPO
CASE STUDY
Introduction
1. Chain of Hypermarket and Supermarket
2. Founded by Radhakishan Damani

Presence
As of 2016 has 118 stores in India spread across Maharashtra,
Gujarat, Andhra Pradesh, Telangana, Madhya Pradesh, Chhattisgarh,
Rajasthan, Karnataka

Objective of Issue
1. Repayment / Prepayment of loans & redemption of NCD’s availed
by the company
2. Expansion
SUMMARY OF FINANCIAL INFORMATION
Particulars For the year / period ended(in Rs Million)
31- 31- 31- 31- 31-
March- March- March- March- March-
2016 2015 2014 2013 2012

Total Revenue 31001.94 23548.1 18076.4 14920.7 11908.7


Total Assets 86061.05 64576.8 47023.2 33551 22224.0
PAT 3212.07 2116.89 1613.72 938.55 604.06
ISSUE DETAIL
• Issue Open: March 8, 2017 - March 10, 2017
• Issue Type: Book Built Issue IPO
• Issue Size: 62,541,806 Equity
• Shares of Rs 10, aggregating upto Rs1870.00 Cr
• Face Value: Rs 10 Per Equity Share
• Issue Price: Rs 295-Rs 299 Per Equity Share
• Market Lot: 50 Shares
• Minimum Order Quantity: 50 Shares
SECONDARY MARKETS
What is a Secondary
Market?
• Secondary Market refers to a market where
securities are traded after being initially offered to
the public in the primary market and/or listed on the
stock exchange
• Majority of the trading is done in the secondary
market
• Secondary Market comprises of equity market and
debt market
Stock Exchange
• Market where securities of joint stock companies
and govt, or semi-govt bodies are dealt in.
• Securities Contracts (Regulation) Act 1956
Role of Stock Exchange
• Raising capital for business.
• Mobilizing savings for investment.
• Facilitating companies growth.
• Profit sharing.
• Creating investment opportunities for small
investors.
• Government capital- raising for development
projects.
Major Stock Exchanges
1. Worldwide
• New York Stock Exchange, United States
• NASDAQ, United States
• London Stock Exchange Group, United Kingdom
and Italy
• Japan Exchange Group, Japan
2. India
• Bombay Stock Exchange (BSE)
• National Stock Exchange (NSE)
Bombay Stock Exchange
• Established in 1875
• Oldest Stock Exchange in Asia
• At least $1 trillion (USD) in market capitalization
• 5529 listed companies, highest worldwide
• Busiest Stock Exchange in India
National Stock Exchange
• Established in 1992
• 1200 listed companies
• Mainly used for Spot Trading
- Buy/Sell immediately at the momentarily available
price
• Also used for derivative trading, mutual funds,
public offerings and wholesale debt
Listing
• Enrolment of name in the official trading list
maintained in the stock exchange.
• SCRA rules, SEBI guidelines and rules and
regulations of exchange prescribe the statutory
requirements to be fulfilled by company for getting
its shares listed.
• Sec 73(1) of Companies Act: should make an
application to one or more recognised stock
exchange for listing its securities within the
prescribed time.
• After scrutiny of listing application, a listing
agreement would be executed.
Listing Obligations
• Annual Listing Fee
• Regulations of Stock Exchange
• Notice of Board Meetings
• Book closure notice
• Submission of reports
• Publication of periodical interim statements
• Issue of shares
Minimum requirements
for Listing
• Minimum Issued capital
• Payment of excess application money
• Listing on multiple exchanges
• The number of shareholders
Trading System
1. Floor Trading
• Trading took place through an open outcry system
on the trading floor or ring of the exchange during
official trading hours.
• Buyers and sellers transact business with broker.
• Brokers transact on behalf of investors.
Trading System
2. Screen based Trading
• Fully automated computer mode of trading.
• Distant participants can trade with each other.
• Greater transparency
• Quick trading
• Proper matching of orders to buy and sell
• Easy and paperless trading through demat
accounts
Process of Trading
Step 1: Investor or trader decides to
trade
Step 2: Places order with a broker to buy
or sell the required quantity of
respective securities
Step 3: Best priced order matches based on
price-time priority
Step 4: Order execution is electronically
communicated to broker terminal
Process of Trading
Step 5: Trade confirmation slip issued to
investor/trader by broker
Step 6: Within 24 hrs of trade execution
contract note is issued to
investor/trader by broker
Step 7: Pay in of funds and securities before
T+2 day
Step 8: Pay out of funds and securities on
T+2 day
STOCK INDEX
What is stock indices?

Some similar Stock are selected and grouped together


to form a index.

indices?
Indices in India and World
TYPES OF MARKET

 Economy is Doing well.  Economy not Doing well.


 Unemployment is Low.  Unemployment High.
 Stock Rising.  Recession is approaching.
 Prices going up.  Prices going down.
WHY DO WE NEED INDICES?
HOW ARE STOCK INDICES FORMED?
•Stock Weightage.
•Market-cap Weightage.
•Price weightage
HOW IS INDEX VALUE CALCULATED?
Depository Receipt (DR)
A depositary receipt is a negotiable financial instrument issued by a
bank to represent a foreign company's publicly traded securities. The
depositary receipt trades on a local stock exchange, such as the New
York Stock Exchange (NYSE) in the U.S., but represents an interest
in a company that is headquartered outside of the United States. A
depositary receipt traded in Germany would represent a non-German
company.
ADR
An American depositary receipt (ADR) is a stock that trades in the
United States but represents a specified number of shares in a foreign
corporation. ADRs are bought and sold on American markets just like
regular stocks, and are issued/sponsored in the U.S. by a bank or
brokerage.
ADRs, like domestic U.S. stocks, have to meet certain SEC filing
requirements. An ADRs' annual report is known as a 20-F filing,
which is similar to the 10-K filing that U.S.-based companies file
annually.
How it works!
• U.S. banks simply purchase a bulk lot of shares from the
company.
• They bundle the shares into groups, and reissues them on
either the New York Stock Exchange (NYSE), American
Stock Exchange (AMEX) or the Nasdaq.
• In return, the foreign company must provide detailed
financial information to the sponsor bank.
• The depositary bank sets the ratio of U.S. ADRs per home-
country share. This ratio can be anything less than or greater
than 1.
Types of ADRs
• Unsponsored ADRs
• Sponsored ADRs
Level I
Level II
Level III
• Restricted programs
144-A
Regulation S

• Unsponsored ADRs are issued without a formal agreement


between the issuing bank and the foreign company – indeed, the
company may have no desire to see its shares listed abroad at all.
They trade on the over-the-counter market.
• Sponsored ADRs fall into three categories. All are supported by
the company, but with different levels of regulation.
o Level I ADRs trade in the over the counter market. Reporting
requirements are very low – the company does not need to issue
any reports in the US or under US accounting standards. It must
be listed on a foreign stock exchange and issue a report in
English in that country under local accounting rules.
o Level II ADRs can trade on a stockmarket such as NYSE or
Nasdaq. The company must register with the Securities and
Exchange Commission and issue annual reports in the US to US
accounting standards.
o Level III ADRs are used by companies that don’t simply want
to float their shares abroad, but also to raise capital in the US
market. Consequently, they are regulated to a similar standard to
US companies. They must issue a offering prospectus, while all
subsequent new releases made in their home market must also
be issued in the US to US standards.
Indian ADRs
GDR
A Global Depository Receipt (GDR) is a certificate issued by a
depository bank, which purchases shares of foreign companies and
deposits it into the account.
GDRs represent ownership of an underlying number of shares.

It is any instrument in the form of a depository receipt or certificate


created by the overseas depository bank outside India and issued to
non- resident investors against the issue of ordinary shares or Foreign
Currency Convertible Bonds of issuing company. Among the Indian
Companies, Reliance Industries Ltd. was the first company to raise
funds through a GDR issue.
International Organization of
Securities Commissions
• Established in 1983, it is an association of
organizations that regulate the world’s securities
and futures markets.

• International body recognized as the global


standard setter for the securities sector.

• Develops, implements and promotes adherence to


internationally recognized standards for securities
regulation.
Objectives and Principles
• IOSCO has three main objectives:
o Protecting investors
o Ensuring that markets are fair, efficient and
transparent
o Reducing systemic risk

• It has 38 principles, which are majorly


grouped into 10 categories.
Objectives and Principles
1. Principles relating to the 6. Principles for auditors,
regulator credit rating agencies,
2. Principles for self- and other information
service providers
regulation
7. Principles for collective
3. Principles for the investment schemes
enforcement of
8. Principles for market
Securities Regulation intermediaries
4. Principles for 9. Principles for secondary
cooperation in and other markets
regulation 10. Principles relating to
5. Principles for issuers clearing and settlement
IOSCO Board
• Governing and standard-setting body of IOSCO.

• Comprises of 34 securities regulators.

• 8 specialized sub-committees which conduct the


policy work.

• Focus on regulation of stock exchanges, market


intermediaries, mutual funds and other collective
investment schemes.
Members
• Securities Commission or the main financial
regulator from each country.

• Members are divided into 3 categories:


o Ordinary Members
o Associate Members
o Affiliate Members

• Currently, IOSCO has 207 members: 125 ordinary


members, 18 associate members, and 64 affiliate
members.
Members
• Ordinary Members- Must be primary regulators of
securities or futures market in a jurisdiction.

• Associate Members- Other securities or futures


regulators in a jurisdiction, if that jurisdiction has
more than one.

• Affiliate Members- Stock exchanges, self-regulatory


organizations, and various stock market industry
associations.
FDI and FII policies in India
DEFINITION

•‘Foreign Direct Investment - FDI’ means investment by non-


resident entity/person resident outside India in the capital of an Indian
company under Schedule 1 of Foreign Exchange Management
Regulations, 2000
•'Foreign Institutional Investor - FII' An investor or investment
fund that is from or registered in a country outside of the one in which
it is currently investing. Institutional investors include hedge funds,
insurance companies, pension funds and mutual funds
About FDI in India
• Major source of non-debt financial resource for the economic
development
• Total FDI investments India received during April-June 2017 stood
at US$ 14.55 billion as compared to US$ 7.59 billion in 2016, a
growth of 37% Y-O-Y (Source: DIPP)
• The Indian company receiving FDI either under the automatic
route or the government route is required to comply with
provisions of the FDI policy including reporting the FDI and issue
of shares to the Reserve Bank of India. Details of which are found
in Policy document
Routes of approval

• Automatic Route:
Under this route no Central Government permission is required.
• Government Route:
Under this route applications are considered by the Foreign
Investment Promotion Board (FIPB). The proposals involving
investments of more than USD 769.23 million are considered by
Cabinet committee on economic affairs.
Sectors where FDI is prohibited in India
• Lottery Business including Government/private lottery, online
lotteries, etc
• Gambling and Betting including casinos etc
• Chit funds
• Nidhi company
• Trading in Transferable Development Rights (TDRs)
• Real Estate Business or Construction of Farm Houses ‘Real estate
business’ shall not include development of townships, construction
of residential /commercial premises, roads or bridges and Real
Estate Investment Trusts (REITs) registered and regulated under
the SEBI (REITs) Regulations 2014
• Manufacturing of cigars, cheroots, cigarillos and cigarettes, of
tobacco or of tobacco substitutes
• Activities/sectors not open to private sector investment e.g.(I)
Atomic Energy and (II) Railway operation
Sectors Under Automatic Route
• Agriculture – 100%
• Mining of metal and non-metal ores – 100%
• Mining – Coal & Lignite – 100%
• Food Product Retail Trading – 100%
• Broadcasting Carriage Services (Teleports, DTH, Cable Networks,
Mobile TV, HITS) – 100%
• Broadcasting Content Service - Up-linking of Non-‘News & Current
Affairs’ TV Channels/ Down-linking of TV Channels – 100%
• Airports – Greenfield – 100%
• Airports – Brownfield – 100%
• Air Transport Service – Non-Scheduled – 100%
• Air Transport Service – Helicopter Services/ Seaplane Services – 100%
• Construction Development – 100%
• Industrial Parks – new and existing – 100%
• Trading – Wholesale – 100%
Sectors Under Automatic Route
• Credit Information Companies – 100%
• White Label ATM Operations – 100%
• Non-Banking Finance Companies – 100%
• Pharma – Greenfield – 100%
• Petroleum & Natural Gas - Exploration activities of oil and
natural gas fields – 100%
• Petroleum refining by PSUs – 49%
• Infrastructure Company in the Securities Market – 49%
• Commodity Exchanges – 49%
• Insurance – 49%
• Pension – 49%
• Power Exchanges – 49%
• Trading – B2B E-commerce – 100%
• Duty Free Shops – 100% (5.2.15.5)
• Asset Reconstruction Companies – 100%
Sectors Requiring Central Government Approval
• Mining and mineral separation of titanium bearing minerals and ores – Upto 100%
Defence – Beyond 49% & upto 100%
• Publishing/printing of scientific and technical magazines/specialty journals/ periodicals
– Upto 100%
• Publication of facsimile edition of foreign newspapers – Upto 100%
• Print Media - Publishing of newspaper and periodicals dealing with news and current affairs
– Upto 26%
• Air Transport Service - Scheduled, and Regional Air Transport Service – Beyond 49% &
Upto 100%
• Satellites – establishment and operation – Upto 100%
• Telecom Services – Beyond 49% & Upto 100%
• Trading – Single Brand Retail Trading (SBRT) – Beyond 49% & Upto 100%
• Pharma – Brownfield – Beyond 74% & Upto 100%
• Banking – Private Sector – Beyond 49% & Upto 74%
• Banking – Public Sector – Upto 20%
• Private Security Agencies – Beyond 49% & Upto 74%
• Broadcasting Content Service - FM Radio – Upto 49%
• Uplinking of ‘News & Current Affairs’ TV Channels – Upto 49%
• Trading - Multi Brand Retail Trading (MBRT) – Upto 51%
FII regulations
• FII can invest in the capital of an Indian company with individual
holding of an FII/FPI below 10% of the capital of the company and
the aggregate limit for FII/FPI investment to 24% of the capital of
the company. The aggregate FII/FPI investment, individually or in
conjunction with other kinds of foreign investment, will not exceed
sectoral/statutory cap.
• Only registered FIIs/FPIs and NRIs as per Schedules 2,2A and 3
respectively of Foreign Exchange Management (Transfer or Issue
of Security by a Person Resident Outside India) Regulations, 2000,
can invest/trade through a registered broker in the capital of Indian
Companies on recognized Indian Stock Exchanges.
Monitoring of Foreign Investments by RBI
• The Reserve Bank of India monitors the ceilings on FII/NRI/PIO
investments in Indian companies on a daily basis
• For effective monitoring of foreign investment ceiling limits, the
Reserve Bank has fixed cut-off points that are two percentage
points lower than the actual ceilings
• Once the aggregate net purchases of equity shares of the company
by FIIs/NRIs/PIOs reach the cut-off point, the Reserve
Bank cautions all designated bank branches so as not to purchase
any more equity shares of the respective company on behalf of
FIIs/NRIs/PIOs without prior approval of the Reserve Bank
• On reaching the aggregate ceiling limit, the Reserve Bank advises
all designated bank branches to stop purchases on behalf of their
FIIs/NRIs/PIOs clients
THANK YOU!