Venkat Financial Markets

7/28/2019 Venkat Financial Markets

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INDIAN FINANCIAL/ CAPITALMARKETS


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Financial Markets

A Market is a place where buyers andsellers come together to exchange

something Financial Markets are where financial

Instruments/products are exchanged.

A Financial Market is known by type ofproduct traded in it


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Different Financial Markets

FINANCIAL MARKET

MoneyMarket

DebtMarket

ForexMarket

CommodityMarket

CapitalMarket

SecondaryMarket

PrimaryMarket

GILT edgedMarket

CorporateMarket


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Money Market

Markets for short term

Borrowing and Lending

Primarily used by Banks

Typical Financial InstrumentsCall money market

Treasury bill market

Term money marketCertificate of deposit market

Commercial papers

Bills Discounting

Interest rate Swaps and FRAS


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Capital Market

It is an institutional arrangement for

borrowing medium and long-term funds and

which provides facilities for marketing and

trading of securities.

So it constitutes all long-term borrowings

from banks and financial institutions, borrowings

from foreign markets and raising of capital by

issue various securities such as shares

debentures, bonds, etc.


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Capital Market

Long Term Funds

Raised by

Government

Corporate

Trading Instruments used

Shares

Derivatives

Units of Mutual Funds


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SIGNIFICANCE OF CAPITAL MARKETS

Growth of savings

Efficient allocation of investment resources

Better utilization of the existing resources

CAPITAL MARKET INSTRUMENTS

o Equity

o Preference shares

o Debenture/ Bonds

o ADRs/ GDRs

o Derivatives


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Types of Capital market

Primary Market

Instruments issued for first time

Used by

Government/Corporates/PSUs

IPO

Initial Public Offering

Secondary Market

Trading of already issued

Stocks

Bonds

Stock Exchange


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Primary Market

The Primary Market consists ofarrangements, which facilitate theprocurement of long-term funds by

companies by making fresh issue ofshares and debentures. You know thatcompanies make fresh issue of shares

and/or debentures at their formationstage and, if necessary, subsequently forthe expansion of business.


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PARTIES INVOLVED IN THE NEW

ISSUE/PRIMARY MARKET

Managers to the Issue

Registrar to the Issue

UnderwritersBankers to the Issue

Advertising Agents

The Financial Institutions


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TYPES OF ISSUES IN PRIMARY MARKET

Issue through prospectus

Public issue (Offer for sale):

Private Placement

Rights Issue

Book Buildings

ESOPBONUS ISSUE


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SECONDARY MARKET

The secondary market known as stock

market or stock exchange plays an equallyimportant role in mobilizing long-term funds

by providing the necessary liquidity toholdings in shares and debentures

Place where buying and selling of

existing Shares/ Debt.EXAMPLES OF STOCK MARKETS

In India- BSE & NSE

Internationally- NYSE, LSE & TSE are the

largest capital markets


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Stock and Shares

Stock Capital raised by corporations

Through issue and distribution of shares

Share Signifies ownership in the company

A company might have thousands of

Shareholders Which company issued shares for the

first time in the world??? The Dutch East India Company in 1602


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The main characteristics of a stock

exchange are

It is an organized market. It provides a place where existing and

approved securities can be bought and soldeasily.

In a stock exchange, transactions take placebetween its members or their authorizedagents.

All transactions are regulated by rules and bylaws of the concerned stock exchange.

It makes complete information available to

public in regard to prices and volume oftransactions takin lace ever da .


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FUNCTIONS OF A STOCK EXCHANGE

Provides ready and continuous market

Provides information about prices andsales

Provides safety to dealings andinvestment

Helps in mobilisation of savings andcapital formation

Barometer of economic and businessconditions

Better Allocation of funds


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Stock Exchange

Place where the shares are traded

BSE

NSE

BSE Bombay Stock Exchange

Oldest Stock Exchange in Asia

Sensex Sensitive Index

Index of 30 Actively traded Companies

NSE National Stock Exchange

Incorporated in 1992

Nifty

Index of 50 Actively traded Companies


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7/4/2013 G.Venkatachalam.MBA.,M.Com.,M.Phil.,

Structure of Capital MarketsPrimary Markets Secondary Markets

When companies need financial resources forits expansion, they borrow money from

investors through issue of securities.

The place where such securities are traded bythese investors is known as the secondary

market.

Securities issued

a)Preference Shares

b)Equity Shares

c)Debentures

Securities like Preference Shares andDebentures cannot be traded in the secondarymarket.

Equity shares is issued by the under writersand merchant bankers on behalf of thecompany.

Equity shares are tradable through a privatebroker or a brokerage house.

People who apply for these securities are:

a)High net worth individual

b)Retail investorsc)Employees

d)Financial Institutions

e)Mutual Fund Houses

f)Banks

Securities that are traded are traded by theretail investors.

One time activity by the company. Helps in mobilizing the funds for the investorsin the short run.


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DISTINCTION BETWEEN PRIMARY

MARKET AND SECONDARY MARKET

Function

Participants

Listing Requirement

Determination of prices


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Debt Market

Debt Contract

One Party lends to another Party

Predetermined

Interest Rates and Term

Participants Banks

Financial Institutions

Mutual Funds

Insurance Companies etc.

Instruments Government Securities (G-Secs)

Public Sector Units Bonds

Corporate Securities


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Foreign Exchange Market

Foreign Goods Payments in Foreign Currency

Forex Market

Participants Government

Payments for Imports

Repayment of Loans

Importers Exchange Rates One Currency in terms of

other (Eg. 1 US Dollar = 55 Rupees) Bid Rate

Offer Rate


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Investment Basics

Using savings to get returns in futureis known as Investment

Why should I invest?? I want to earn return on my idle money

A good bank balance before I retire

I intend to own a Mansion and Ferrari

When should I invest

As soon as possible


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Where to invest???

Physical Assets

Real Estate ,Gold/jewellery

Requires huge capital Financial Assets

Savings Bank Account

Fixed Deposits Post office

Government Bonds

Provident Funds


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A Few Jargons!!!

Types of Shares Common/Equity Preferred

Face Value

Market Value

Market Capitalization

Dividend


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A few more Jargons!!!

Stock Broker

Mutual Funds

Annual Report

Prospectus

Liquidity


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PRIVATE EQUITY/ PRIVATEPLACEMENT

Funds are raised in the primary marketby issuing securities privately to someinvestors without resorting tounderwriting (insurance against risk by aguarantor). The investors in this casemay by financial institutions, commercial

banks, and other companies,shareholders of promoting companies,and friends and associates of the

promoters.


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REASONS FOR DEVELOPMENT OF

PRIVATE PLACEMENT

Private placement of securities is subject tomuch less compliance than the publicissue.

Private placement is cost effective ascompared to public issue.

Private placement is time effective as deals

can be easily and directly negotiated withfew investors.

Private placement helps to tailoring theissues according to the needs of the

companies.


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Regulatory Environment in India

Pre 1991

Tight Control of Government

Post 1991 Liberalization

Opening of the Economy

Need for Supervision Regulation

Regulatory Bodies


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Regulatory Environment in India

RBI Reserve Bank of India

Established in 1935

Bankers Bank Regulates Indian Financial Institutions

SEBI Securities and Exchange Boardof India

Incorporated in 1992

Regulation of Securities Market

Protecting the interests of Investors


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So want something more???

Whats more in Store??

Mutual Funds Stock Valuation

Derivatives


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Thank you !!

Documents

Venkat Financial Markets