Capital Market Stock Exchanges Present Scenerio

8/8/2019 Capital Market Stock Exchanges Present Scenerio

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CAPITAL MARKET, STOCK EXCHANGES &PRESENT SCENERIO

CAPITAL MARKET

FINANCIAL MARKETS & GOVERNMENT POLICIES

- After more than four decades of heavy regulation and low rate of economicgrowth, Indian Govt. opened the economy during 1991 to market forces &promoted modernisation of financial institutions.

- For 4 decades after Independence India had followed a developmentstrategy based on extensive Govt. Direction.

- DFIs, commercial banking, capital markets, Insurance, PSUs of all naturewere strictly controlled by Govt. Policies & norms.

- Corporate Sector/ Business Sector was also under strict governance ofGovt.


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ROLE OF CAPITAL MARKET IN ECONOMICDEVELOPMENT

- Depends upon growth prospects based on economic policies & foreignpolicies

- Growth prospects would depend upon proper management andadministration of an economy / country

- Strong & positive government with good policies and their

implementations, would lead to real GDP growth, FDI , FII, Exportssupporting BOP, profitabilities of listed companies

( short and long term ), credit policies, monetary policies,etc.

- The general / normal economic thinking has been :

To achieve faster economic growth, the capital market can channelisethe source of finance in the primary segment ( new issues ).

- Capital market makes two important contributions to growth :(i) It signals to other providers of capital ( such as banks ) the prospects

and therefore, the risk of lending to companies

(ii) It provides opportunities for investors to seek out and invest incompanies of the future.


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CAPITAL MARKET INSTITUTIONS

- Before 1991 it was CCI Controller of capital issues

- 1992 onwards known as SEBI Securities & Exchange Board Of India

- 1994 : NSE - National Stock Exchange

- National Securities Depository Limited ( NSDL )

( Physical form / Dematerialised form )- 1993 : FIIs - Foreign Institutional Investors

STOCK INDICES

- An Index is a no. that represents the changes in a set of values between a

base time period and another time period- Similarly, a stock index represents change in the value of a set of stocks

which constitute the index, over a base year

- Sensex & Nifty are the 2 major stock indices of India represents BSE andNSE respectively


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Contd..

2 Main objectives of stock indices are :

(a) To reflect market direction

(b) To indicate day to day fluctuations in the prices of scrips

- The utility of a stock market index lies in a positive relationship with

returns to different securities- The BSE sensex consists of 30 selected stocks and Nifty consists of 50

selected stocks. Most of these Cos are Blue Chip Cos having a verygood track record. As they are actively traded, the index shares have avery high liquidity

- A stock market index is created by selecting a group of stocks that

represent the whole market or a specified sector or segment of themarket. An index is calculated with reference to a base period and a baseindex value


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Stock market indices are useful for a variety ofreasons. Some of them are :

- They provide a historical comparison of returns on money invested in stockmarket against other forms of investments such as gold or debt

- They can be used as a standard against which to compare the performanceof an equity fund

- It is the lead indicator of the performance of the overall economy or a sectorof the economy

- Stock Indices reflect highly up-to-date information

- Modern financial applications such as Index Funds, Index Futures, andIndex Options, play an important role in financial investments and riskmanagement


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BSE SENSEX & OTHER INDEX NUMBERS

- BSE : Sensitive Index is a Market Capitalisation Weighted index of

30 stocks representing a sample of large well established and financiallysound companies

- The BSE sensex is the benchmark index of the Indian Capital Markets

with wide acceptance among individual investors, institutional investors,foreign investors, and fund managers

- THE OBJECTIVES OF THE INDEX ARE :

1. To measure market movements

2. Benchmark for funds performance

3. For Index-Based Derivative products (eg) The countrys first derivative

product (ie) The countrys first derivative product (ie) Index Futures waslaunched on BSE - Sensex


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CRITERIA FOR SELECTION OF SCRIPS

The eligibility criteria to be included in the sensex can be specified as follows :

(a) Market Capitalisation : (ie) The scrip should figure in the top 100

companies listed by market capitalisation. Also market capitalisation of each scripshould be more than 0.5% of the total market capitalisation of Index (ie) Theminimumweight should be 0.5%

(b) Liquidity & Trading Frequency : (ie) The scrip should have been traded on each &every trading day for the last one year. Exceptions can be made for extremereasons like scrip suspension & so on

(c) No. of Trades : The scrip should be among the top 150 Cos listed by average noof trades per day for the last one year

(d) Value of shares Traded : The scrip should be among the top 150 Co;s listed byaverage value of shares traded per day for last one year

(e) Trading Activity : The average no. of shares traded per day as a % of the totalno. of outstanding shares of the Co. should be greater than 0.05% for the last 1year ------- Scrip selection would take into account a balanced representation ofthe listed Cos in the world of BSE. The index Cos should be leaders in theirIndustry Group


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SENSEX MOVEMENT

MARCH APRIL : 2006(i) Sensex had crossed 12000 Mark

(ii) Considered as Peak Point

(iii) Taken as a signal of performance of

Corporate Sector in India

- The daily sensex value is available in the market and it fluctuates depending

upon the demand & supply factors- If sensex is in the range of 18000 20000, then it is generally considered

as positive sign in the stock market

- Sensex point below 6,000 indicates recessionary trend in the market

- BSE sensex has witnessed more than 100% return during 2004 2008,over a period of 3 years

DURING 2007 : Sensex had crossed 20000 Mark (Due to progress / prospects)DURING 2008 : Sensex started declining touching 8000 Mark ( Meltdown )

DURING 2009 : A recent improving trend around 14000 Mark ( Speculations )


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OTHER INDICES OF BSE

- Besides Sensex, BSE 100, BSE 200, BSE 500, Dollex

- 100, 200 and 500 are Index Nos related to major scrips from differentsectors

- Dollex is the US $ version of the BSE 200 Index. This is to facilitate

investment evaluation in US $ terms for foreign investors. The BASE year ofDOLLEX is the fiscal year of 1989 90

- Sensex was launched by BSE during 1986 BSE pioneered the concept ofstock market indices

- The BSE has introduced a broad based index consisting of 500 Scrips w.e.f.16thy August, 1999 to represent all segments of listed stocks. The base

date & base value of BSE 500 is 1st February, 1999 and 1000 pointsrespectively. It represents all 23 major industries and 102 sub-sectors of theIndian Economy covering more than 80% of the Total Market Capitalisation


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NIFTY AND NSE INDEX NOs

- Similarly major Indices of NSE are S&P CNX Nifty, CNX Nifty Junior, S&P CNX500, CNX Midcap 200

- Among these Indices, S&P Nifty is considered as a Benchmark index of NSE

MAJOR STOCK EXCHANGES OF THE WORLD

(i) NASDAQ in USA : National Association Of Securities Dealers Automated

Quotations. Trading began on 8th February, 1971Branch Exchanges in Canada and JapanThey have associations with exchanges in Hongkong and Europe

(ii) NYSE - New York Stock Exchange(iii) Dow Jones ( The Dow Jones Industrial Average ) - Oldest continuing US

market Index - Guaging the performance of Industrial component of AmericasStock Market

(iv) S&P 500

( standard and poors corporation ) List of 500 US companies, orderedby market capitalisation(v) Nikkei ( Tokyo Stock Exchange ) Nikkei Average is the most watched Index of

Asian Stocks(vi) Kospi ( Korea Composite Stock Price Index )


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DERIVATIVES MARKET

- A derivative security can be defined as a security whose value depends onthe value of other underlying variables

- Derivative securities are available on stocks, stock indices, bullion, index,currency, Bonds, Interest Rates, Commodities in the World

- Derivative means Forward, Futures, or Option Contract of Pre-determined

fixed duration, linked for the purpose of contract fullfilment to the value ofspecified real or financial asset or to index securities

- Derivatives are meant essentially to facilitate temporary hedging of pricerisk of inventory holding or a financial / commercial transaction over acertain period

- Acts as a form of Insurance

- RISKS in trading derivatives may change depending on what happens tothe underlying asset

- Derivatives are broadly classified into : (i) Futures (ii) Options

- Trading needs to take place through authorised exchanges


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Contd

The derivatives market performs a no of economic functions :

1. Helps in managing risks

2. Helps in the discovery of future prices

3. Increases the volume traded in markets because of participation risk aversepeople in greater numbers

4. Increases savings and investments in the long run- The participants in derivatives market are of 3 types :

(i) Hedgers (ii) Speculators (iii) Arbitrageurs

- Hedgers use futures or options markets to reduce or eliminate the risk

associated with the price of an asset

- Speculators use futures and options contracts to get extra leverage in betting onfuture movements in the price of an asset. They can increase both potential gains

and potential losses by usage of derivatives in a speculative venture- Arbitrageurs are in business to take advantage of a discrepancy between prices in

2 different markets. If for example, they see the futures prices of an asset gettingout of line with the cash price, they will take offsetting positions in the 2 markets tolock in a profit

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Capital Market Stock Exchanges Present Scenerio