CAPITAL MARKET PROLOGUE DEFINITION OF CAPITAL MARKET FEATURES MAIN ELEMENTS STOCK MARKET INDIAN ECONOMY AND CAPITAL MARKET AT A GLANCE WHY INVEST IN INDIAN CAPITAL MARKETS? CONCLUSION
CAPITAL MARKET WHAT IS CAPITAL MARKET ?
CAPITAL MARKET PROLOGUE PROLOGUE C apital markets are a sub-part of the financial system. Conceptually, the financial system includes a complex of institutions and mechanism which affects includes a complex of institutions and mechanism which affects the generation of savings and their transfers to those who will invest. It may be said to be made of all those channels through which savings become available for investments
CAPITAL MARKET DEFINATION OF CAPITAL MARKET Capital market can be defined as: A market for medium to long-term financial instruments. Financial instruments traded in the capital market include shares, and bonds issued by the Australian Government, State governments, corporate borrowers and financial institutions.
CAPITAL MARKET In other words: The capital market (securities markets) is the market for securities, where companies and the government can raise long-term funds. The capital market includes the stock market and the bond market
CAPITAL MARKET FEATURES Efficient capital securities markets Engine of growth Increasing integration Best regulated market regulatory framework
CAPITAL MARKET MAIN ELEMENTS OF CAPITAL MARMET
CAPITAL MARKET THREE ELEMENTS OF CAPITAL MARKET 4 FINANCIAL ASSETS/INSTRUMENTS/SECURITIES 4 FINANCIAL INTERMEDIARIES 4 FINANCIAL MARKETS
CAPITAL MARKET THE MAIN ELEMENTS FINANCIAL ASSETS/ INSTRUMENTS/SECURITIES The tangible/physical asset is one whose value depends on its physical properties such as buildings, machines, furniture, vehicles and so on. The entity/economic unit that offers the future cash flows is the issuer of the financial instrument and the owner of the security is the investor. Depending upon the nature of claim/return, an instrument may be :
CAPITAL MARKET 4 DEBENTURE/BONDS : Debenture/bonds is a debt instrument indicating that a company has borrowed certain sum of money and promise to repay it in future under clearly defined terms. 4 TRUST(BOND)INDENTURE: is a complex and lengthy legal document starting the conditions under which a bond has been issued.
CAPITAL MARKET 4 DEBENTURE REDEMPTION RESERVE : is a requirement in a debenture indenture providing for the systematic retirement of debenture/bonds prior to their maturity. 4 TERM LOANS: is a loan made by a bank/financial institution to a business having an initial maturity of more than I year:
CAPITAL MARKET EQUITY CAPITAL: Equity capital represents ownership capital, as equity shareholder collectively own the company. They enjoy the rewards and risks of ownership. SOME TERMS: 4 AUTHORISED EQUITY/SHARE CAPITAL: is the number of ordinary share capital that a firm can raise without further shareholder approval.
CAPITAL MARKET ISSUED SHARE CAPITAL: The portion of the authorized capital offered by the company to the investors is the Issued capital. 4 SUBSCRIBED SHARE CAPITAL: is the number of share (capital) outstanding. 4 PPREFERENCE SHARE CAPITAL: is a unique type of long term financing in that combines some of the features of equity as well as debenture. It carries a fixed rate of dividend and it ranks higher than equity as a claimant to the income/assets.
CAPITAL MARKET 4 INITIAL PUBLIC OFFERING(IPO): The first issue of the equity share to the public by an unlisted company is called Initial Public Offerings(IPO).
CAPITAL MARKET 4 CUMULATIVE(DIVIDEND)PREFERENCE SHARES: are preference shares for which all unpaid dividends in arrears must be paid along with the current dividend prior to the payment of dividends to ordinary shareholders. 4 STRAIGHT PREFERENCE SHARE VALUE/PRICE: is the price at which a preference share would sell without the redemption /call feature. 4 CONVERTIBILITY: Preference share capital may sometimes be convertible partly/fully into equity shares/debentures at a certain ratio during a specified period. A variant in India is cumulative convertible preference shares which combine the cumulative and convertibility features. It has, however, been a non-starter so far.
CAPITAL MARKET 4 CONVERTIBLE DEBENTURES: give the holders the right (option) to change them into a stated number of shares. 4 COVERSION RATIO: is the ratio at which a convertible debenture can be exchanged for shares. 4 CONVERSION PRICE: is the per share price that is effectively paid for the shares as the result of exchange of a convertible debenture.
CAPITAL MARKET 4 FINANCIAL INTERMEDIARIES: Financial intermediaries are institutions that channelise the savings if investors into investments/loans. As institutional source of finance,they act as a link between the savers and the investors which results in institutionalization of personal savings. Their main functions is to convert direct financial assets into indirect securities. The indirect securities offer to the individual investor better investor alternative then the direct/primary security by pooling which it is created, for example, units of mutual funds.
CAPITAL MARKET 4 FINANCIAL MARKETS: Financial markets perform a crucial function in the financial system as facilitating organizations. Unlike financial intermediaries, they are not a source of funds but are a link and provide a forum in which suppliers of funds and demanders of loans/investments can transact business directly
CAPITAL MARKET The two key financial markets are the money markets and the securities markets: 4 money market : is created by financial relationship between suppliers and demanders of short term funds having maturities of one year or less. 4 securities markets : is a financial relationship created by a number of institutions and arrangements that allows suppliers and demanders of long term funds with maturities exceeding one year to make transactions.
CAPITAL MARKET TYPES OF MARKET 4 PRIMARY MARKET 4 SECONDARY MARKET
CAPITAL MARKET PRIMARY MARKET The primary market deals with the issue of new instruments by the corporate sector such as equity shares, preference shares and debentures. Function of primary market- ORIGINATION: is the work of investigation and analysis and processing of new issue proposals. UNDERWRITING: is a form of guarantee that the new issue would be sold by eliminating the risk arising from uncertainty of public response. DISTRIBUTION: is the sale of the ultimate investors.
CAPITAL MARKET CONTD 4 Abolition of Controller of Capital Issues in 1992. 4 Constitution of Securities and Exchange Board of India (SEBI) as the apex regulator. 4 for capital markets. 4 Free pricing of equity. 4 Introduction of book building for raising capital 4 Relaxation in equity dilution norms allowing large unlisted firms esp. in the technology. 4 Progressive changes in the entry norms enabling all companies to access markets.
CAPITAL MARKET CONTD . But subject to high disclosure norms and QIB participation 4 Domestic equity raised in last three years at Rs630 bn is twice the amount 4 Raised during the preceding decade Rs364 bn 4 Problem of vanishing companies witnessed in mid nineties now well taken Care of with strict disclosure norms and regulatory supervision
CAPITAL MARKET SECONDARY MARKETS 4 Stock exchanges discharge three vital functions in the orderly growth of capital formation: 1. Nexus between savings and investments 2. Market place and 3. Continuous price formation
CAPITAL MARKET CAPITAL MARKET AT A GLANCE 4 Second fastest growing economies after China with an average annual growth rate of more than 8 per cent in the last three years. 4 Indian companies may issue shares under Employee Stock Option Scheme to its employees who are resident outside. 4 Foreign Institutional Investors are allowed to invest in India under the Foreign Institutional Investment scheme. 4 Private equity is allowed as an alternative form of investment
CAPITAL MARKET COND 4 NSE (Indias National Stock Exchange) is the third largest in the world in the number of trades after NYSE and NASDAQ. 4 India has 23 small and 2 big stock exchanges. 4 The 2 big stock exchanges (National Stock Exchange and Bombay Stock Exchange) account for 90 per cent of trade. Over 7000 listed companies on the stock exchanges largest in the world.
CAPITAL MARKET COND 4 39 mutual funds with over 500 schemes for investment. 4 There are 86 venture capital funds and 54 foreign venture capital investors. 4 FIIs can invest on behalf of their clients through sub- accounts. 4 For normal FIIs, limit for investment in equity is at least 70 per cent while the rest could be invested in debt up to a maximum limit of 30 per cent. 4 9040 brokers in cash segment and 1064 in derivative segment of the market. 4 122 investment bankers in the market. 4 58 under writers to support primary issues. 4 34 foreign venture capital funds &120 Portfolio managers
CAPITAL MARKET WHY TO INVEST IN INDIAN CAPITAL MARKET ?
CAPITAL MARKET BECAUSE: 4 Indias accounting standards are closer to international standards. 4 SEBI has made corporate governance guidelines mandatory for listed companies. 4 Mutual funds are permitted to invest overseas up to $3 billion. 4 Almost 100 per cent risk free electronic settlement through depository system.
CAPITAL MARKET CONTD. 4 In India the transactions are totally electronic on a real time basis. 4 Business Week says that of 100 emerging market firms which are rapidly globalizing 21 are Indian firms. 4 Economists project India to become the third largest economy in the world by 2040.
CAPITAL MARKET CONCLUSION 4 Indian markets amongst the best regulated markets in the world. 4 Need for greater integration with international markets in terms of capital flows, products and processes 4 Need to introduce new age financial products and to encourage. 4 participation of new age investors.