IMPACT OF GLOBALISATION ON INDIAN STOCK MARKET….

Presented By:-

Mir Omer

Vijaya

Ashish

Asha Jyoti

Mohsin

GLOBALISATION

GLOBALISATION

•Expansion of economic activities across the political boundaries of

nation states.

•Increasing economic openness and growing economic interdependence between countries.

•Opening up of markets to foreign players and vice versa.

Growth Of Exports

Good news:-• Wider markets for trade

• Larger private capital inflows

• Better access to technology

• Availability of a wider variety

of goods

Bad news:-• Reduction in sovereignty

• Increase in competition may

lead to some firms closing

down

• Risk of being left behind

•Payoffs are larger, but so are

the penalties for policy

inaction or errors

Period Percent 1980-81 to 1991-92 7.4

1992-93 to 1999-00 10.1

2000-01 to 2010-11 37.5

WHY INDIA A PART OF THE PROCESS OF GLOBALISATION?

Economic Indicators 1990-1991 1999-2000 2010-2011

India’s Share in World Exports

0.5% 0.6% 1.3%

India’s Share in World Imports

- 0.8% 2.1%

India’s Exports as percent of GDP

5.8% 8.5% 22%

India’s Imports as percent of GDP

8.8 12.3 24.78%

Foreign Direct Investment (million US$)

155 2155 19427

•Prior to 1991, India practiced an inward-looking strategy or import substitution policy in order to be self-reliant. Unfortunately this policy, for various reasons could not serve the purpose to:

•achieve the expected growth rate

• eradicate poverty

•improve human development indicators like literacy, life expectancy and

•the general well being of the people.

India was more of a passive by-stander than an active participant.

Reasons for India to liberalise its economy:

• to be better equipped to improve the performance of theGovernment;

• to provide opportunities to launch development plans by securing longterm foreign direct investment flows; and

• expand job opportunities, reduce poverty, create consumers in the market place.

Thereby make the circle of economic development virtuous rather than vicious.

CAN INDIA AVAIL OF THE BENEFITS OF GLOBALISATION WITH ITS PRESENT GOVERNMENT SYSTEM / STRUCTURE?

The answer is no. India needs to bring reforms at the level of governance. With decreased government protection and increased participation in the process of globalisation, the government must provide an enabling environment and infrastructure to get benefits out of the process. For instance:

• Availability of electricity at lower prices, in right quantity and quality;

• Good infrastructure facilities such as communications, roads, transport, ports etc;

• Flexible labour market;

• Discipline and tightening of bureaucratic setup; and

• Effective system to guard against corrupt officials.

Globalisation and its impact on Indian Industry.

MILESTONES/EVENTS THAT HAVE AFFECTED THE BUSINESS.

•End of World War I (1918)

•End of World War II (1945)

•End of Cold War (1989)

•9/11 (2001)

GLOBALIZATION & INDIA

India Went Through Economic Reforms From 1991. The major ones are:

•Reductions In Import Duty

•Removal of restrictions on imports

•Devaluation of Currency

•Removal of permissions on setting up enterprises and expansion of capacity

•Removal of permission of Controller of Capital on Share Premium Account on issues of Shares

•Privatization of Public Sector Units

•Membership of WTO

•Easier entry of multinationals

Indian Financial System.

THE INDIAN ECONOMY -- A BRIEF HISTORY

•The second most populated country in the world

•India currently is the third largest economy

•India inherited one of the world’s poorest economies

•the best formal financial markets in the developing world, with four functioning stock exchanges

•a banking system with clear lending norms and recovery procedures;

•and better corporate laws than most other erstwhile colonies.

INDIAN FINANCIAL SECTOR

•The history of India’s stock exchanges (4 at independence to 23 today)

•large number of listed firms (over 10,000)

•The ratio of India’s market capitalization to GDP rose from about 3.5% in the early 1980’s to over 59 % in 2005, which ranks 40th among 106 countries

• while the size of the (private) corporate bond market is small

•the financial system is dominated by an efficient (low overhead cost) but significantly under-utilized (in terms of lending to non-state sectors) banking sector.

• The financial institutions consist of commercial and co-operative banks,RRB’s,AIFI’s and NBFC’s.

•Fall under the ambit of RBI act 1934.

• the financial market in india comprises of money market,securities market,FEM, and capital market.

•The reserve bank set up the institute for development and research in banking techonology (IDRBT) in 1996.

•An autonomous centre for technology capacity building for banks and providing core IT services.

REFORMS

PRE-REFORMS

•Channelling resources from the surplus to deficit sectors.

•Banking sector suffered from lack of competition,low capital base,low productivity, and high intermediation cost.

•After nationalisation of large banks in 1969 and 1980, govt owned banks dominated the banking sector.

•Banks didn’t follow proper risk management systems and prudential standards were weak.

•Development financial institutions (DFI’s) operated in an over protected environment.

•Insurance sector faced little competition.

The mutual fund industry also suffered from lack of competition,and was dominated for long by UTI.

NBFC’s grew rapidly but there was no regukation of their asset side.

Barriers to entry.

High transaction costs

Restriction on movement of funds between the market segments.

This apart from inhibiting the development of the markets also affected their efficiency.

Post 1991 phase.docx

Privatisation of FI’s

Conversion of IFC into public company (IFCI Ltd.).

Private mutual funds were set up under SEBI.

Number of private banks under RBI guidelines.

Setting up of IRDA and enactment of IRDA act 1999.

Establishment of PRDA.

Thus monopoly over financial institutions till early 1990’s was dismantled in a phased manner.

Reorganisation of Institutional Structure.

Development / Public Financial Institutions:-

1. Backbone of IFS till 2000

2. Addition to financing of industry in the form of project loans ,

underwriting , lease financing provided core working capital also.

3. The focus shifted from development finance to that of promoting institutional infrastructure,geared to capital market development.

4. ICICI securities and finance ltd., IFCI financial services ltd., IFCI investors services ltd.

5. Thus development banks had assumed the character of financial conglomerates in contrast to their earlier role as lending institutions.

Commercial Banks

Post 90’s era of indian banking is characterised by prudential,viable,profitable banking.

Geographically wide and functionally diverse banking system had emerged.

Phenomenal growth in deposits

Increase in the share of priority sector but

Incremental cost of opertion was more than incremental cost of income per rupee of working funds.

Factors were partly in terms of macro-economy and partly organisational.

Securities/Capital Market

major reforms in primary market:-

Merit based regime to disclosure based regime

Mutual funds are encouraged both in private and public sector

Disclosure and investor protection guidelines issued

Pricing of public issues determined by market

SEBI promoted SRO’s

Banks,FI’s,PSU’s allowed raising funds from PM

Accounting standards are close to international standards

Corporate governance guidelines issued

Secondary Market

Major reforms:-

Mandatory registration of market intermediaries

Capital adequacy norms specified for the brokers.

Shortening of settlement cycle to T+2

Regular inspection of stock exchanges and mutual funds

FII’s allowed investing in indian capital market since 1992

Comprehensive risk management system

Comprehensive surveillance system

Securities appellate tribunal

Introduction of exchange traded derivatives

Screen based trading

Money Market

After 1990,a sophisticated and articulate money market emerged

Emergence of specialised institutions namely primary dealers and money market mutual funds.

Activating and modifying the existing procedures

call/notice market

Commercial bills market

Commercial papers

Certificate of deposits

SEBI

Protect the interest of investors in securities

Promote the development of securities market

Regulate the securities market

THANK YOU …..