3 Impact of Reforms in Capital Market on Indian Capital Market

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Reform's in capital Market & its impact on IndianCapital Market

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Indian Capital Market -

Historical perspectiveStock Market was for a

privileged few

Archaic systems - Out crymethod

Lack of Transparency - High

tones costs

No use of Technology

Outdated banking system

Volumes - less than Rs. 300

cr per day

No settlement guaranteemechanism - High risks


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Indian Capital markets -

Chronology1994-Equity Trading commences on NSE1995-All Trading goes Electronic

1996- Depository comes in to existence

1999- FIIs Participation- Globalisation

2000- over 80% trades in Demat form

2001- Major Stocks move to Rolling Sett

2003- T+2 settlements in all stocks

2003 - Demutualisation of Exchanges


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Exist

Capital markets facilitate the transfer of capital (i.e.financial) assets from one owner to another.

They provide liquidity.

Liquidity refers to how easily an asset can be transferred

without loss of value.

A side benefit of capital markets is that the transaction

price provides a measure of the value of the asset.


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Role ofCapital

MarketsMobilization 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


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Functions of a Capital

MarketDisseminate 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 procedurelowering settlement timings and

lowering transaction costs

Develop integration among

Real sector and financial sector

Equity and debt instruments

Long term and short term funds

Private sector and government sectorand

Domestic funds and external funds

Direct the flow of funds into efficient channels

through

Investment

Disinvestment

Reinvestment

F t t ib ti t


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Factors contributing togrowth of Indian Capital

MarketEstablishment 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

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Growth Pattern of the Indian Stock Market

Sr. No. As on 31st December 1946 1961 1971 1975 1980 1985 1991 1995

1No. ofStock Exchanges

7 7 8 8 9 14 20 22

2No. ofListed Cos.

1125 1203 1599 1552 2265 4344 6229 8593

3

No. of Stock

Issues ofListed Cos. 1506 2111 2838 3230 3697 6174 8967 11784

4Capital of ListedCos. (Cr. Rs.)

270 753 1812 2614 3973 9723 32041 59583

5Market value ofCapital of ListedCos. (Cr. Rs.)

971 1292 2675 3273 6750 25302 110279 478121

6Capital perListed Cos. (4/2)(Lakh Rs.)

24 63 113 168 175 224 514 693

7

Market Value ofCapital per ListedCos. (Lakh Rs.)(5/2)

86 107 167 211 298 582 1770 5564

8Appreciated valueof Capital perListed Cos. (Lak Rs.)

358 170 148 126 170 260 344 803


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Capital Markets - ReformsEach scam has brought in reforms - 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 andexchanges


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CAPITAL MARKET

REFORMS IN INDIAThe 1990s have witnessed

the emergence of the

securities market as a major

source of finance for tradeand industry in India.

A growing number of

companies have been

accessing the securities

market rather than dependingon loans from financial

institutions / banks.

The corporate sector is

increasingly depending on

external sources for meetingits funding requirements.


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Reforms / Initiatives post 2000Corporatisation of exchange

memberships

Banning of Badla / ALBM

Introduction of Derivative products -Index / Stock Futures & Options

Reforms/Changes in the margining

system

STP - electronic contracts

Margin Lending

Securities Lending


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MARKET STRUCTURE

(JULY 31, 2005)22 Stock Exchanges,Over 10000 Electronic Terminals at

over 400 locations all over India.

9108 Stock Brokers and 14582 Sub

brokers

9644 Listed Companies

2 Depositories and 483 Depository

Participants

128 Merchant Bankers, 59

Underwriters

34 Debenture Trustees, 96 Portfolio

Managers

83 Registrars & Transfer Agents, 59

Bankers to Issue

4 Credit Rating Agencies

National Stock Exchange


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Stock Exchanges in India

National Stock Exchange

Bombay Stock Exchange

Inter-connected Stock Exchange (NEW)

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

OTC Exchange of IndiaCalcutta Stock Exchange

Madras Stock Exchangea

Madhya Pradesh Stock Exchange

Vadodara Stock Exchange

The Ahmedabad Stock ExchangeMagadh Stock Exchange

Gauhati Stock Exchange


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Primary MarketMarket for newissues/fresh capital

(IPOs)

New issues mkt.

Participants

Issuer

Investors

Intermediaries


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Mobilization of funds

Prospectus

Right issues and

Private

placement


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Free pricing regimeBefore 1992,Regulator of newissues was CCI (Controller of

Capital Issues)

Approval from CCI for raising funds

in primary mkt.

Timing, quantum ,and pricing of theissue were decided by the controller

New Cos 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, promoter and merchant

banker together decide the price of

the issue.


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The role of the Stock

Exchange

Corporate governance

Creates investment

opportunities for small

investors

Government raises capitalfor development projects

Barometer of the

economy


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Functions Of SEBI

Regulates Capital Market.

Checks Trading of securities.

Checks the malpractices in

securities market.

It enhances investor's

knowledge on market by

providing education.

It regulates the stockbrokersand sub-brokers.

To promote Research and

Investigation


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DRAWBACKS OF INDIAN STOCKMARKET:

Unethical practices.

Big irrational greed,

excessive speculation.

Lack of protection to interests

of the genuine and small

investors .

Trading is extremely thin and

restricted.

Structural and organisationalimbalance in the growth of the

stock market.

Volatility of the market has

increased over the years.


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HOW TO MAKE MONEY FROM CAPITALMARKET?

Patience,

profound

knowledge

Best guess

DiversificationPortfolio

management


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Indian Capital Market deficiencies

Lack of

transparency

Physical settlement

Variety of

manipulative

practices

Institutional

deficiencies

Insider trading

M M k t V C it l


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Money Market Vs Capital

MarketIt is for short termSupplies funds for Working

Capital

Instruments are Treasury bill, CM,

etc

Each single instrument is of large

amount

Central bank and Commercial

banks are major.

These instruments do not have

secondary market.

Transactions are on over phone

and there are no formal place

Transaction without the help ofbroker.

It is for long termSupplies funds

for fixed capitalrequirementInstruments are

shares, debentures, etc.Each

single instrument is of small

amountDevelopment bank and

insurance companies are

major.These instruments havesecondary market.Transactions

are at formal place. Eg stock

market.Transaction have to be

conducted with the help of broker.


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THANK YOU...


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Documents

3 Impact of Reforms in Capital Market on Indian Capital Market