A

Presentation
On
Capital Market

Prepared By:
Mitul Patel Roll No.152
Shukla Siddharth Roll No. 229
Ashvin Jadav Roll No.135
Ajit Patil Roll No. 174
Hemali Pathak Roll No. 198
Sonam Sanghadia Roll No. 216
Capital Market
What is Capital Market:

“A capital market is a market for securities (debt or equity), where

business enterprises (companies) and governments can raise long-term
funds. It is defined as a market in which money is provided for periods
longer than a year[1], as the raising of short-term funds takes place on
other markets (e.g., the money market). The capital market includes the
stock market (equity securities) and the bond market (debt).’’
Capital markets classified:

Capital markets may be classified as primary markets and

secondary markets. In primary markets, new stock or bond issues are sold
to investors via a mechanism known as underwriting. In the secondary
markets, existing securities are sold and bought among investors or traders,
usually on a securities exchange, over-the-counter, or elsewhere.
WHY SCAM??

 The Post-economic liberalization era witnessed cyclic scams.

 The series of scams led to believe that scams and liberalization are correlated
phenomena

 The scams led to connivance and collusion of banks.

 Scams even led to the closer of the BSE

 Generics' for the scams lies within the regulation of the Stock Exchange
CONT…

 Unscrupulous promoters took the advantage of the free pricing to raise money by
price rigging.

 Beside this grey market activity were common where the share prices were quoted
at a premium before they were listed on Exchange.

 Even the Exchange enjoyed the loop holes in regulatory system some of the scams.

 All the scamster employed common ploys like price manipulation, price rigging,
insider trading, etc among the bankers, brokers, politicians and promoters.

 The regulators were so ineffective that actions were undertaken only after the
investors were looted of their hard earned money.
HARSHAD MEHTA SCAM

The 1991-1992 securities scam (Harshad Mehta scam)

 In 1991, major changes in the government policy led to the emergence of a

market-oriented private enterprise economy through the removal of controls.

 The economic liberalization package compelled banks to improve their

profitability.

 With liberalization, entered the free interested rate regime, which meant that
banks had to face interested rate uncertainty.
CONT…

 Hence , public sector banks were forced to undertake more trading in

government securities. The increase in interest rate on government securities
with a longer period of maturity meant capital loss (depreciation) on the
holding of old security. To party offset this loss, banks began trading of a new
instrument-repos or ready forward.

 Repo is a means of funding by selling a security held on spot (ready) basis and
repurchasing it on a forward it on a forward basis.
CONT...

 The stock market index the BSE Sensex-rose by leaps and bounds. Harshad Mehta, by
injecting the bank s’ money into share trading , pushed up prices of selected scrips.

 Besides the banks’ funds, he tapped another sources of money –mutual funds. The
government was encouraging the creation of mutual funds. These mutual funds, in order to
increase their popularity, assured higher returns which led to sizable flow of money to the
stock market. Brokers ,with so much money in their hands , were successful in raising the
sensex by 1500 points in 15 days.

 The Boom, which began in July 1991, peaked in April 1992, before the bubble burst. Prices
of many scrips such as Apollo Tyres, ACC, Castrol india, East india Hotels, GE shipping ,
GNFC, Deepak Fertilizers, and Tata chemicals shot up three times their usual value in just a
year ‘s time. National Housing Banks, Bank of Karad , Metropolitan cooperative banks,
Standard chartered Bank, Citibank , Bank of America, ANZ Grindlays bank , canbank
Financial services and many other institutions were involved in the boom.
CONT...

 The stock market index the BSE Sensex-rose by leaps and bounds. Harshad Mehta, by
injecting the bank s’ money into share trading , pushed up prices of selected scrips.

 Besides the banks’ funds, he tapped another sources of money –mutual funds. The
government was encouraging the creation of mutual funds. These mutual funds, in order
to increase their popularity, assured higher returns which led to sizable flow of money to
the stock market. Brokers ,with so much money in their hands , were successful in
raising the sensex by 1500 points in 15 days.

 The Boom, which began in July 1991, peaked in April 1992, before the bubble burst.
Prices of many scrips such as Apollo Tyres, ACC, Castrol india, East india Hotels, GE
shipping , GNFC, Deepak Fertilizers, and Tata chemicals shot up three times their usual
value in just a year ‘s time. National Housing Banks, Bank of Karad , Metropolitan
cooperative banks, Standard chartered Bank, Citibank , Bank of America, ANZ Grindlays
bank , canbank Financial services and many other institutions were involved in the boom.
KETAN PAREKH SCAM IN 2001

 Investment in ICE

 Parekh’s modus operandi- 3 broking-outfits and 40 satelite brokers

 Kolkata and Ahmedabad

 Sources of funds
CONT…

 May-November 1999

 Change in SENSEX

 Suspended all seven broker

 Ketan parekh and madhavpura bank

REFORMS IN THE PRIMARY CAPITAL MARKET

 The SEBI was set up in early 1988 as a non statutory body under an
administrative arrangement. The two objective s mandated in the SEBI Act are
investor protection and orderly development of capital market.

 The Capital Issue(Control)Act,1947 was repealed in May 1992, allowing

issuers of securities to raise capital from the market without requiring the
consent of any authority either for floating an issue or pricing it.

 The infrastructure of the primary capital market has been fairly diversified
over the years with the setting up of a large number of merchant bankers,
investment and consulting agencies, and registrars to the issue.
CONT...

 The primary capital market has widened and deepened with public sector banks,
financial institutions and public sector enterprises in the infrastructure and power
sectors increasingly raising resources from the market both by way of debt and equity.

 The requirement to issue shares at a par value of rs.10 and rs.100 was withdrawn. This
gave companies the freedom to determine a fixed value per share. This facility is
available to companies which have dematerialized their shares. Moreover they cannot
be issued in the decimal of rupee. The companies which have already issued shares at
rs.10 or rs.100 per value are also eligible for splitting and consolidating the share
values.

 Improved disclosure standards, prudential norms, and simplified issue procedures have
been prescribed. Companies are required to disclosed all material facts, specific risk
factors associated with their projects while launching public issues.
CONT…

 To reduce the cost of the issues, underwriting by the issuer was made optional,
subject to the condition that if an issue was not underwritten and in case it
failed to secure 90 percent of amount offered to the public, the entire amount so
collected would be refunded.

 One of the significant steps towards integrating the Indian capital market with
the international capital markets was the permission given to foreign
institutional investors such as mutual funds, pension funds, and country funds,
to operate in the Indian market. Foreign institutional investors were initially
allowed to invest only in equity shares; later, they were allowed to invest in the
debt market, including dated government securities and treasury bills.
CONT..

 Shares now be allotted on a proportionate basis within the specified categories,

with the predetermined minimum allotment being equal to the minimum
application size.

 The facility of electronic clearing services (ECS) was extended to refunds

arising out of public issue so as to ensure faster and hassle free refunds.
REFORM IN THE SECONDARY CAPITAL MARKET

 On line screen based electronic trading.

 Stock exchange are allowed, subject to conditions, to use the settlement

guarantee funds(SGF) for meting shortfalls caused by non-fulfillment/partial
fulfillment of the obligations by members, before declaring them defaulters.

 All actively traded securities are held,traded,and settled in demat form.

 All listed companies are required to furnish to stock exchanges and also publish
unaudited financial results on a quarterly basis.
CONT...

 Companies are allowed to buy back their shares for capital restructuring,
subject to condition that the buy back does not exceed 25% of the paid-up
capital and free reserve of the concerned company.

 This buy back has been allowed to improve liquidity and enhance wealth of the
share holders.

 Internet trading was permitted in february 2000.

 It is mandatory for listed companies to announce quarterly results. The

declaration of quarterly results is in line with the practice prevailing in the stock
markets in developed countries.
CONT…

 With a view to strengthening the position, specifying accountability and

protecting the interest of investors, the SEBI defined the roles of the chief
executive officer and fund manager to mutual funds.

 SEBI were also permitted to invest up to 10%of the net assets as on January 31
of each year in foreign securities with the limit of minimum US$5 million and
maximum of US$50 million.
Thank You