2. Organized Indian Financial SystemMoney MarketInstrument Capital MarketInstrument ForexMarket CapitalMarket MoneyMarket CreditMarket Primary Market Financial InstrumentsFinancial Markets Financial IntermediariesSecondary MarketRegulators 3. Money Market Vs Capital Market
- Instruments are T-bill, CM, etc
- Each single instrument is of large amount
- Central bank and Commercial banks are major.
- Supplies funds for fixed capital requirement
- Instruments are shares, debentures, etc.
- Each single instrument is of small amount
- Development bank and insurance companies are major.
- These instruments do not have secondary market.
- Transactions are on over phone and no formal place
- Transaction without the help of broker.
- These instruments have secondary market.
- Transactions are at formal place. Eg stock market.
- Transaction have to be conducted with the help of broker.
5. 6. Why Capital Markets Exist
- Capital markets facilitate the transfer of capital ( i.e.financial) assets from one owner to another.
- Liquidity refers to how easily an asset can be transferred without loss of value.
- A side benefit of capital markets is that the transaction price provides a measure of the value of the asset.
7. Role of Capital Markets
- Mobilization of Savings & acceleration of Capital Formation
- Promotion of Industrial Growth
- Raising of long term Capital
- Ready & Continuous Markets
- Proper Channelisation of Funds
- Provision of a variety of Services
8. Functions of a capital market
- Disseminate information efficiently
- Enable quick valuation of financial instruments both equity and debt
- Provide insurance against market risk or price risk
- Enable wider participation
- Provide operational efficiency through
- -simplified transaction procedure
- - lowering settlement timings and
- - lowering transaction costs
- Develop integration among
- -real sector and financial sector
- -equity and debt instruments
- -long term and short term funds
- -Private sector and government sector and
- -Domestic funds and external funds
- Direct the flow of funds into efficient channels through
10. Factors contributing to growth of Indian Capital Market
- Establishment of Development banks & Industrial financial institution.
- Growing public confidence
- Increasing awareness of investment opportunities
- Growth of underwriting business
11. Indian Capital Market -Historical perspective
- Stock Market was for a privileged few
- Archaic systems - Out cry method
- Lack of Transparency - High tones costs
- Volumes - less than Rs. 300 cr per day
- No settlement guarantee mechanism - High risks
12. 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
- 2001- Major Stocks move to Rolling Sett
- 2003- T+2 settlements in all stocks
- 2003 - Demutualisation of Exchanges
13. Capital Markets - Reforms
- Each scam has brought in reforms - 1992 / 2001
- Screen based Trading through NSE
- Capital adequacy norms stipulated
- Dematerialization of Shares - risks of fraudulent paper eliminated
- Entry of Foreign Investors
- Investor awareness programs
- Inter-action between banking and exchanges
14. CAPITAL MARKET REFORMS IN INDIA
- The 1990s have witnessed the emergence of the securities market as a major source of finance for trade and industry in India.
- A growing number of companies have been accessing the securities market rather than depending on loans from financial institutions / banks.
- The corporate sector is increasingly depending on external sources for meeting its funding requirements.
15. Reforms / Initiatives post 2000
- Corporatisation of exchange memberships
- Introduction of Derivative products - Index / Stock Futures & Options
- Reforms/Changes in the margining system
- STP - electronic contracts
16. MARKET STRUCTURE(JULY 31, 2005)
- Over 10000 Electronic Terminals at over 400 locations all over India.
- 9108 Stock Brokers and 14582 Sub brokers
- 2 Depositories and 483 Depository Participants
- 128 Merchant Bankers, 59 Underwriters
- 34 DebentureTrustees,96 PortfolioManagers
- 83 Registrars & Transfer Agents, 59 Bankers to Issue
17. Indian Capital Market Market Instruments Intermediaries Primary Secondary Equity Debt Hybrid Regulator
SEBI Players Corporate Intermediaries CRA Banks/FI FDI /FII Individual 18. Stock Exchanges in INDIA
- Uttar Pradesh Stock Exchange
- Coimbatore Stock Exchange
- Saurashtra Kutch Stock Exchange
- Inter-connected Stock Exchange (NEW)
- Madhya Pradesh Stock Exchange
- The Ahmedabad Stock Exchange
- Bhubaneswar Stock Exchange
- Delhi Stock Exchange Assoc
19. Growth Pattern of the Indian Stock Market Sl.No. As on 31st December 1946 1961 1971 1975 1980 1985 1991 1995 1No. of Stock Exchanges 77 88 9 14 20 22 2 No. ofListed Cos. 11251203 1599 1552 2265 4344 6229 8593 3No. of Stock Issues ofListed Cos.1506 2111 2838 3230 3697 6174 8967 11784 4Capital of Listed Cos. (Cr. Rs.) 270 753 1812 2614 3973 9723 32041 59583 5Market value of Capital of Listed Cos. (Cr. Rs.)971 1292 2675 3273 6750 25302 110279 478121 6Capital per Listed Cos. (4/2) (Lakh Rs.) 24 63 113 168 175 224 514 693 7 Market Value of Capital per Listed Cos. (Lakh Rs.) (5/2)86 107 167 211 298 582 1770 5564 8Appreciated valueof Capital per Listed Cos. (Lak Rs.) 358 170 148 126 170 260 344 803 20. Primary Market
- Market for new issues/fresh capital (IPOs)
21. Mobilization of funds
22. Free pricing regime
- Before 1992,Regulator of new issues was CCI (Controller of Capital Issues)
- Approval from CCI for raising funds in primary mkt.
- Timing, quantum ,and pricing of the issue were decided by the controller
- New co.s can issue shares only at par
- Existing companies with substantial reserves could issue shares at premium
- Fixed price mechanism resulted in under pricing of many issues
- After 1992, promoter and merchant banker together decide the price of the issue.
23. Fixed price mechanism of new issue
- To offer share at a fixed price
- Firm and merchant banker decide an offer price
- Investor opinion wasnt considered while setting offer price
- Long time lag among the date of pricing, the date the issue opens ,and the date when trading commences
- Raises possibility of price fluctuations in intervening period
24. Book Building-A new issue mechanism in India
- mechanism through which an offer price for IPOs based on investors demand is determined .
25. Book building process
- Appointment of book runner i.e. merchant banker
- Preparation and submission of draft documents to SEBI and obtaining of an acknowledgement card.
- A specified price band (range) is to be determinedby issuer and book runner
- Different price levels are invited from syndicate members .Adv. Should mention opening and closing dates for the bids
- Issuer arrives at a final cut-off rate & final allocation in consultation with book runner and lead manager
- 6.Issuer and book runner may impose restrictions on number of shares that can be allotted to each client
- 7. Final prospectus is filed with the (ROC) along with procurement agreement
- 8.Placement portion opens for subscription
- 9.Placement portion closes a day before the opening of public issue portion
27. Book building options
- Issuecan be categorized into
- - Public portion (net offer to the public)
28. Limitations of book building method
- Still dependent on good faith
- No. of investors invited to apply are limited
- Not proved to be good price discovery mechanism
- Lag time of more than 60 days between issue pricing and listing
- Issuer may have to sell cheap due to collective bargaining
- High institutionholding may affect stocks liquidity
- Volatility may increase due to bulk offloading
29. Distinction between Primary andSecondary Market
- Organizational differences
- Nature of contributions to industrial finance
30. Secondary Market Secondary/Stock market!!!! 31. JARGON OF EQUITY MARKET:
- PAR VALUE vs. MARKET VALUE
32. How does the stock market function?
- Depositories and their participants
- Securities and Exchange Board of India (SEBI)
33. The role of the stock exchange
- Creates investment opportunities for small investors
- Government raises capital for development projects
34. Functions Of SEBI
- Regulates Capital Market.
- Checks Trading of securities.
- Checks the malpractices in securities market.
- It enhances investor's knowledge on market by providing education.
- It regulates the stockbrokers and sub-brokers.
- To promote Research and Investigation
35. Functions Of RBI Monetary Authority: Issuer of currency:Regulator and supervisor of the financial system: Authority On Foreign Exchange: Developmental role:Related Functions: 36.
- The price of every stock increasesor decreases for the following possible reasons:
- Depends on demandand supply for that stock.
- DRAWBACKS OFINDIAN STOCK MARKET:
- Big irrational greed, excessivespeculation.
- Lack of protection to interests ofthe genuine and small
- Trading is extremely thin and restricted.
- Structural and organisational imbalance in the growth of the
- Volatility of the market has increased over the years.
38. HOW TOMAKE MONEY FROM CAITAL MARKET?
- patience, profound knowledge.
39. Indian Capital Market deficiencies
- Variety of manipulative practices
- Institutional deficiencies
40. Thank YOU