Capital Markets Grp 4

8/8/2019 Capital Markets Grp 4

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CAPITAL MARKET


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Meaning of capital market

A nation's capital market includes financial

institutions such as banks, insurance

companies, and stock exchanges that channel

long-term investment funds to commercial

and industrial borrowers.


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Importance of capital markets

Pooling the capital resources

Developing enterprises investors

Solve the problem of paucity of funds Mobilize the small and scattered savings

Augment the availability of investible funds


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Classification of

capital markets

Industrial

securitiesmarket

Government

securitiesmarket

Long term loan

market


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IndustrialSecurities

Market

PrimaryMarket

Secondary

Market

GovernmentSecurities

Market

StockCertificates

Promissory

notes

Bearer Bonds

Long term loanMarket

Term loanMarket

Mortgage

Market

FinancialGuarantees

Market


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Elements of security market

Investors

Issuers

Intermediary Regulator


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Indian Capital markets - Chronology

1994-Equity Trading commences on NSE

1995-All Trading goes Electronic

1996- Depository comes in to existence 1999- FIIs Participation- Globalisation

2000- over 80% trades in Demat form

2003- T+2 settlements in all stocks


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Bombay Stock Exchange(BSE)

The oldest stock exchange in Asia.

The world's number one exchange in theworld in terms of the number of listedcompanies (over 4900)

World's 5th most active in terms of numberof transactions handled through its electronic

trading system. Futures and options on the index are also

traded at BSE.


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National Stock Exchange(NSE)

Indias largest Stock Exchange

Worlds third largest stock exchange in terms

of transactions (daily turnover and number ofsales).

The main objective is to establish trading

facility nationwide for all types of securities.


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CRITERIA BSE NSE

Established in: 1875 1992

Geographical spread: Presence in 417 cities Presence in 1,486 cities

Number of listed

companies (June 2010):

4900+ 1,810

Index Value(19 Aug 2010): 18429.18 5416.25

Market capitalization oflisted companies:

Rs. 4,670,227 crore Rs. 3,367,350 crore


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Stock Trading

The buying and selling of stocks is called as

stock trading.

Mainly there are two ways of doing stocktrading:

(1)Online Stock Trading.

(2)Offline Stock Trading.


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Online Stock Trading -Doing stock trading with help of computer,internet connection and with trading/demat

account is called Online Stock Trading.

Offline Stock Trading -

Doing stock trading with the help of broker orthrough phone is called Offline trading.


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Different types of stock trading

Day trading -Buying and selling of stocks on daily basis is calledday trading. This is also called as intraday trading.

Delivery TradingIn Delivery Trading, we have to take the deliveryof stocks and after getting these stocks in our

demat account we can sell them at anytime (orwe can hold them till we want, there is norestriction).


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Essentials required for trading in stock

market.

Demat account.

Only brokers and sub-brokers registered can buy

and sell shares in the stock exchange.

Any individual should get himself registered withone of these brokers/sub-brokers.

There is a provision for signing of broker/sub-broker - client agreement form.


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Brokers/sub brokers ask their clients to deposit money with

them known as margin based on which brokers provide

exposure to the clients in the stock market.

This demat account can be opened with a depository

participant which again is a SEBI registered intermediary.

Some of the leading depository in the country are Stock

Holding Corporation of India Ltd., ICICI Bank, HDFC Bank etc.

If an individual buys shares ,it is in the demat account thatcredit of shares are received. Similarly when a person sells

shares, he has to transfer shares to the brokers account

through his demat account. All the brokers/sub-brokers also

essentially have a demat account.


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Documents required to open Demat account.

i. PAN card,

ii. Voter's ID,

iii. Passport,iv. Ration card,

v. Driver's license,

vi. Employee ID card,

vii. IT returns,

viii.Electricity/ Landline phone bill etc.


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Trading procedure

Shares can be bought and sold through a broker on

telephone.

Brokers identify their clients by a unique code

assigned to a client.

Apart from the purchase price of security, a client is

also supposed to pay brokerage, stamp duty and

securities transaction tax.

Trading of securities happen on the first day while

settlement of the same happens two days after.


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Security bought on Monday will be received bythe client earliest on Wednesday which is calledpay out day by the exchange.

However there is provision which allows a brokerto transfer securities till 24 hours after pay outreceipt. Hence the broker may transfer shares

latest by Thursday for a security bought onMonday. Any transfer after Thursday would invitepenalty for the broker


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Rolling Settlement Cycle: (RSC)

Under rolling settlement all open positions at the

end of the day mandatorily result in payment/

delivery n days later.

Stock exchanges follow T+2 days settlement

cycle.

Trading happens on every business day, excluding

Saturday, Sunday and exchange notified holidays. Trading schedule is between 10:00 a.m. in the

morning to 3:30 p.m. in the evening.


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Settlement of securities is done by the

clearing corporation of the exchange.

Settlement of funds is done by a panel of

banks registered with the exchange. Clearing

corporation identifies payable/ receivable

position of brokers based on which obligation

reports for brokers are created


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Pay-in & Pay-out

Pay-in day is the day when the securities sold aredelivered to the exchange by the sellers and fundsfor the securities purchased are made available to

the exchange by the buyers. Pay-out day is the day the securities purchased are

delivered to the buyers and the funds for thesecurities sold are given to the sellers by theexchange.

At present the pay-in and pay-out happens on thesecond working day after the trade is executed on

the stock exchange.


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Depositories

A bank or company which holds funds or securitiesdeposited by others, and where exchanges of thesesecurities take place.

A Depository performs the following functions:

1. Hold securities in an account

2. Transfers securities between accounts on theinstruction of the account holder.

3. Facilitates transfers of ownership without having tohandle securities.

4. Facilitates safekeeping of shares.


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There are two depositories in India, whichprovide dematerialization of securities. The

National Securities Depository Limited (NSDL)and Central Securities Depository Limited (CSDL).

The Depository provides its services to investorsthrough its agents called depository participants(DPs). These agents are appointed by thedepository with the approval of SEBI. Accordingto SEBI regulations, amongst others, threecategories of entities, i.e. Banks, FinancialInstitutions and SEBI registered trading memberscan become DPs.


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Players in the Indian Capital Market

Merchant bankers

Registrars

Collecting and coordinating bankers

Underwriters and brokers

Lead managers

Regulators

Stock exchange

Depositories and DPs

Custodians


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Securities and Exchange Board of India

SEBI Act, 1992 provides for establishment of Securitiesand Exchange Board of India (SEBI) with statutorypowers for

(a) protecting the interests of investors in securities(b) promoting the development of the securities

market and

(c) regulating the securities market.

Its regulatory jurisdiction extends over corporates inthe issuance of capital and transfer of securities, inaddition to all intermediaries and persons associatedwith securities market.


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In particular, it has powers for:

Regulating the business in stock exchanges and anyother securities markets

Registering and regulating the working of stock

brokers, subbrokers etc. Promoting and regulating self-regulatory organizations

Prohibiting fraudulent and unfair trade practices

Calling for information from, undertaking inspection,

conducting inquiries and audits of the stock exchanges,intermediaries, self regulatory organizations, mutualfunds and other persons associated with the securitiesmarket.


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Initial Public Offer(IPO)

An IPO is the selling of securities to the public

in the primary market. It is when an unlisted

company makes either a fresh issue of

securities or an offer for sale of its existing

securities or both for the first time to the

public. This paves way for listing and trading of

the issuers securities. The sale of securitiescan be either through book building or

through normal public issue.


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HOW IS IPO DONE?

FIXED PRICE METHOD, BOOK BUILDING METHOD OR A COMBINATIONOFBOTH.

BASIS fixed price method book building method

PRICING Price at which the securities are

offered/allotted is known inadvance to the investor.

Price at which securities will be

offered/allotted is not knownin advance to the investor. Only

an indicative price range is

known

DEMAND Demand for the securities offered

is known only after the closure of

the issue

Demand for the securities

offered can be known everyday

as the book is built.

PAYMENT Payment if made at the time of

subscription wherein refund is

given after allocation.

Payment only after allocation.


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IPO process

Memorandumof

understanding

ProspectusRegistration

with SEBI

Silent PeriodApprovalDate finalizedfor IPO


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Issue opens for public

Investors deposit application form along with

cheque.

Scheduling and scrutinizing the forms Consolidated forms reported to Investment

bank who inturn advices the issuer

No publicity can be done by quoting public

response


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IPO closes

1) The register shall prepare a data set showing

(a) Category of investors: Resident Indians,domestic institutional investors, high net worth

individuals, foreign institutional investors, othercorporate bodies.

(b) Shares applied for by each of the abovecategories

(2) The register approaches the stock exchangewhere the issue is to be listed and propose ascheme of allotment


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The registrar shall begin crediting the shares

to the Demat a/c of the successful andsending regret letters with complete refund to

the unsuccessful investors.

Till 90% subscription is received the money

must be kept in a separate bank a/c. if the

minimum subscription is not received the

underwriters to the issue shall make good forthe shortfall.


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SEBI guidelines for an IPO

In case of an unlisted company:

Pre-issue networth of the co. should not beless than Rs.1 crore in last 3 out of last 5 years

The issue size shall not exceed five times itspre-issue networth.

In case an unlisted company does not satisfy

any of the above criterion, it can come outwith a public issue only through the Book-Building process.


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SEBI guidelines for an IPO

In case of a listed company:

The issue size is less than five times its pre-issue networth.

If the issue size is more than or equal to 5times of pre-issue networth, then the listedcompany has to take the book building route

and allot sixty percent (6

0%) of the issue sizeto the Qualified Institutional Buyers (QIBs)


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Engineers India Limited IPO

The price band - Rs. 270 to 290 per share.

Total no. of shares sold - 33,693,660 shares. Of

this, around 712,000 shares are reserved for

the company employees.

Size of the IPO Rs 9,771,161,400.

IPO dates 27th July to 30th July,2010.

Face value of shares-Rs.5

Oversubscribed - 13.36 times(as per NSE

websites)


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Effects of Inflation on Indian Stock

Market

RBI Increasing Rates

Lack of Liquidity

Poor results of Corporates

Real Estate leading the down-fall

Banking sector the under-performer


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