Capital Market Pres

8/14/2019 Capital Market Pres

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Capital MarketCapital Market

Presentation ByPresentation By

Raghunandan HelwadeRaghunandan Helwade

&&

Ganesh DabhadeGanesh Dabhade


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INDEXINDEX

Introduction to Capital MarketIntroduction to Capital Market

Importance of Capital MarketImportance of Capital Market

Investment BasicsInvestment Basics

SecuritiesSecurities Primary MarketPrimary Market

Secondary MarketSecondary Market

Products in Secondary MarketProducts in Secondary Market

DerivativesDerivatives

Mutual FundsMutual Funds

ConclusionConclusion


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INTRODUCTION TO CAPITALINTRODUCTION TO CAPITAL

MARKETMARKET

The capital market is theThe capital market is the marketmarket forfor securitiessecurities, where, wherecompaniescompanies andand governmentsgovernments can raise longterm funds. It iscan raise longterm funds. It isa market in which money is lent for periods longer than aa market in which money is lent for periods longer than a

year.year.

A nation's capital market includes such financial institutionsA nation's capital market includes such financial institutionsas banks, insurance companies, and stock exchanges thatas banks, insurance companies, and stock exchanges that

channel long-term investment funds to commercial andchannel long-term investment funds to commercial andindustrial borrowers. Unlike the money market, on whichindustrial borrowers. Unlike the money market, on whichlending is ordinarily short term, the capital market typicallylending is ordinarily short term, the capital market typicallyfinances fixed investments like those in buildings andfinances fixed investments like those in buildings andmachinery.machinery.
http://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Markethttp://en.wikipedia.org/wiki/Security_%28finance%29http://en.wikipedia.org/wiki/Security_%28finance%29http://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Governmenthttp://en.wikipedia.org/wiki/Corporationhttp://en.wikipedia.org/wiki/Security_%28finance%29http://en.wikipedia.org/wiki/Market


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Nature and ConstituentsNature and Constituents

The capital market consists of number of individuals and institutionsThe capital market consists of number of individuals and institutions(including the government) that canalize the supply and demand for long-(including the government) that canalize the supply and demand for long-term capital and claims on capital. The stock exchange, commercial banks,term capital and claims on capital. The stock exchange, commercial banks,co-operative banks, saving banks, development banks, insuranceco-operative banks, saving banks, development banks, insurancecompanies, investment trust or companies, etc, are important constituentscompanies, investment trust or companies, etc, are important constituents

of the capital markets.of the capital markets. The capital market, like the money market, has three importantThe capital market, like the money market, has three important

components, namely the suppliers of loanable funds, the borrowers and thecomponents, namely the suppliers of loanable funds, the borrowers and theintermediaries who deal with the leaders on the one hand and theintermediaries who deal with the leaders on the one hand and theborrowers on the other.borrowers on the other.

The demand for capital comes mostly from agriculture, industry, trade andThe demand for capital comes mostly from agriculture, industry, trade andthe government. The predominant form of industrial organization developedthe government. The predominant form of industrial organization developedcapital Market become a necessary infrastructure for fast industrialization.capital Market become a necessary infrastructure for fast industrialization.Capital market not concerned solely with the issue of new claims on capital,Capital market not concerned solely with the issue of new claims on capital,but also with dealing in existing claims.but also with dealing in existing claims.


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Importance of Capital MarketImportance of Capital Market

The capital market serves a very useful purpose by pooling theThe capital market serves a very useful purpose by pooling thecapital resources of the country and making them available to thecapital resources of the country and making them available to theenterprising investors well-developed capital markets augmententerprising investors well-developed capital markets augmentresources by attracting and lending funds on the global scale.resources by attracting and lending funds on the global scale.

A developed capital market can solve this problem of paucity ofA developed capital market can solve this problem of paucity offunds. For an organized capital market can mobilize and poolfunds. For an organized capital market can mobilize and pooltogether even the small and scattered savings and augment thetogether even the small and scattered savings and augment theavailability of investible funds. While the rapid growth of capitalavailability of investible funds. While the rapid growth of capitalmarkets, the growth of joint stock business has in its turnmarkets, the growth of joint stock business has in its turnencouraged the development of capital markets.encouraged the development of capital markets.

A developed capital market provides a number of profitableA developed capital market provides a number of profitableinvestment opportunities for a small savers.investment opportunities for a small savers.


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INVESTMENT BASICSINVESTMENT BASICS

Investment:Investment:The money you earn is partly spent and the rest savedThe money you earn is partly spent and the rest savedfor meeting futurefor meeting futureexpenses. Instead of keeping the savings idle you mayexpenses. Instead of keeping the savings idle you maylike to use savings inlike to use savings inorder to get return on it in the future. This is calledorder to get return on it in the future. This is calledInvestment.Investment.

Reasons for investments:Reasons for investments:One needs to invest to:One needs to invest to:** Earn return on your idle resourcesEarn return on your idle resources** Generate a specified sum of moneyGenerate a specified sum of money

for a specific goal in lifefor a specific goal in life** Make a provision for an uncertain futureMake a provision for an uncertain future** Inflation.Inflation.


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Various Short-term financial optionsVarious Short-term financial options

available for investmentavailable for investment

Short Term Financial investment is used to parkShort Term Financial investment is used to park

your money at safer options available in theyour money at safer options available in themarket to avoid risk.market to avoid risk.

Money Market or Liquid Funds.Money Market or Liquid Funds. Fixed Deposits (with Tenure less than 1 year).Fixed Deposits (with Tenure less than 1 year).


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Various Long-term financial optionsVarious Long-term financial options

available for investmentavailable for investment

Post Office Savings SchemesPost Office Savings Schemes

Public Provident FundPublic Provident Fund

Company FixedCompany FixedDeposits, Bonds and Debentures,Deposits, Bonds and Debentures,

Mutual FundsMutual Funds

Share Market (Stock Exchange)Share Market (Stock Exchange)


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Stock ExchangeStock Exchange

The Securities Contract (Regulation) Act, 1956 [SCRA]The Securities Contract (Regulation) Act, 1956 [SCRA]defines Stock Exchange as any body of individuals,defines Stock Exchange as any body of individuals,whether incorporated or not, constituted for the purposewhether incorporated or not, constituted for the purposeof assisting, regulating or controlling the business ofof assisting, regulating or controlling the business of

buying, selling or dealing in securities.buying, selling or dealing in securities. Equity/ShareEquity/Share Debt InstrumentDebt Instrument DerivativeDerivative

Mutual FundMutual Fund Index FundIndex Fund DepositoryDepository


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Role of a Stock Exchange in buyingRole of a Stock Exchange in buying

and selling sharesand selling shares

The stock exchanges in India, under the overallThe stock exchanges in India, under the overallsupervision of the regulatorysupervision of the regulatoryauthority, the Securities and Exchange Board of Indiaauthority, the Securities and Exchange Board of India(SEBI), provide a trading platform, where buyers and(SEBI), provide a trading platform, where buyers andsellers can meet to transact in securities.sellers can meet to transact in securities.

The trading platform provided by NSE is an electronicThe trading platform provided by NSE is an electronicone and there is no need for buyers and sellers to meetone and there is no need for buyers and sellers to meetat a physical location to trade.at a physical location to trade.

They can trade through the computerized tradingThey can trade through the computerized tradingscreens available with the NSE trading members or thescreens available with the NSE trading members or theinternet based trading facility provided by the tradinginternet based trading facility provided by the trading

members of NSE.members of NSE.


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What is SEBI and what is its role?What is SEBI and what is its role?

The Securities and Exchange Board of India (SEBI) is theThe Securities and Exchange Board of India (SEBI) is theregulatoryregulatoryauthority in India established under Section 3 of SEBI Act,authority in India established under Section 3 of SEBI Act,1992.1992.

SEBI Act,SEBI Act,1992 provides for establishment of Securities and Exchange1992 provides for establishment of Securities and ExchangeBoard of India.Board of India.

(SEBI) with statutory powers for(SEBI) with statutory powers for(a) Protecting the interests of investors in securities(a) Protecting the interests of investors in securities(b) Promoting the development of the securities market and(b) Promoting the development of the securities market and

(c) Regulating the securities market.(c) Regulating the securities market.


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SECURITIESSECURITIES

The definition of Securities as per the SecuritiesThe definition of Securities as per the SecuritiesContracts Regulation Act (SCRA), 1956,Contracts Regulation Act (SCRA), 1956,

includes instruments such as shares, bonds, scrips,includes instruments such as shares, bonds, scrips,stocks orstocks or

other marketable securities of similar nature inother marketable securities of similar nature inor of any incorporate company or body corporate,or of any incorporate company or body corporate,

government securities, derivatives of securities,government securities, derivatives of securities,

units of collective investment scheme,units of collective investment scheme,

interest and rights in securities, security receipt or anyinterest and rights in securities, security receipt or anyother instruments so declared by the Centralother instruments so declared by the CentralGovernment.Government.


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Which are the securities one canWhich are the securities one can

invest in?invest in?

SharesShares Government Securities Government Securities Derivative products Derivative products Units of Mutual Funds etc., are some of Units of Mutual Funds etc., are some ofthe securities investors in thethe securities investors in thesecurities market can invest in.securities market can invest in.


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PRIMARY MARKETPRIMARY MARKET

The primary market provides the channel for sale of newThe primary market provides the channel for sale of newsecurities.securities.

Primary market provides opportunity to issuers of securities;Primary market provides opportunity to issuers of securities;

Government as well asGovernment as well ascorporates, to raise resources to meet their requirements ofcorporates, to raise resources to meet their requirements ofinvestment and/or discharge some obligation.investment and/or discharge some obligation.

They may issue the securities at face value, or at aThey may issue the securities at face value, or at a

discount/premium and these securities may take a variety ofdiscount/premium and these securities may take a variety offorms such as equity, debt etc.forms such as equity, debt etc.

They may issue the securities in domestic market and/orThey may issue the securities in domestic market and/orinternational market.international market.


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Issue of SharesIssue of Shares

Most companies are usually started privately by theirMost companies are usually started privately by theirpromoter(s).promoter(s).

However, the promoters capital and the borrowings fromHowever, the promoters capital and the borrowings frombanks and financial institutions may not be sufficient forbanks and financial institutions may not be sufficient for

setting up or running the business over a long term.setting up or running the business over a long term. So companies invite the public to contribute towards theSo companies invite the public to contribute towards the

equity and issue shares to individual investors. The wayequity and issue shares to individual investors. The wayto invite share capital from the public is through a Publicto invite share capital from the public is through a PublicIssue. Simply stated, a public issue is an offer to theIssue. Simply stated, a public issue is an offer to the

public to subscribe to the share capital of a company.public to subscribe to the share capital of a company.Once this is done, the company allots shares to theOnce this is done, the company allots shares to theapplicants as per the prescribed rules and regulations laidapplicants as per the prescribed rules and regulations laiddown by SEBI.down by SEBI.


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Different kinds of issues:Different kinds of issues:

Primarily, issues can be classified as a Public, Rights orPrimarily, issues can be classified as a Public, Rights orPreferential issuesPreferential issues(also known as private placements). While public and(also known as private placements). While public andrights issues involve arights issues involve adetailed procedure, private placements or preferentialdetailed procedure, private placements or preferentialissues are relativelyissues are relativelysimpler.simpler.

The classification of issuesThe classification of issues Initial Public Offering (IPO)Initial Public Offering (IPO) Follow on public offering (FPO - Further Issue)Follow on public offering (FPO - Further Issue) Rights IssueRights Issue Fresh Issue Offer for Sale Fresh Issue Offer for SaleFresh Issue Offer for Sale Fresh Issue Offer for Sale Preferential issuePreferential issue


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SECONDARY MARKETSECONDARY MARKET

IntroductionIntroductionSecondary market refers to a market where securitiesSecondary market refers to a market where securitiesare traded after being initially offered to the public in theare traded after being initially offered to the public in theprimary market and/or listed on the Stock Exchange.primary market and/or listed on the Stock Exchange.

Majority of the trading is done in the secondary market.Majority of the trading is done in the secondary market.Secondary market comprises of equity markets and theSecondary market comprises of equity markets and thedebt markets.debt markets.

Role of the Secondary MarketRole of the Secondary Market

The difference between the Primary Market and theThe difference between the Primary Market and theSecondary MarketSecondary Market


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NEAT SystemNEAT System

What is NEAT?What is NEAT?NSE is the first exchange in the world to use satelliteNSE is the first exchange in the world to use satellitecommunicationcommunicationtechnology for trading.technology for trading.

Its trading system, called National Exchange forIts trading system, called National Exchange forAutomated Trading (NEAT), is a state of-the-art clientAutomated Trading (NEAT), is a state of-the-art clientserver based application.server based application.

At the server end all trading information is stored in anAt the server end all trading information is stored in anin memory database to achieve minimum response timein memory database to achieve minimum response time

and maximum system availability for users.and maximum system availability for users. It has uptime record of 99.7%. For all trades enteredIt has uptime record of 99.7%. For all trades entered

into NEAT system, there is uniform response time of lessinto NEAT system, there is uniform response time of lessthan one second.than one second.


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Contract NoteContract Note

Contract Note is a confirmation of trades done on a particularContract Note is a confirmation of trades done on a particularday on behalf of the client by a trading member.day on behalf of the client by a trading member. It imposes a legally enforceable relationship between the clientIt imposes a legally enforceable relationship between the client

and the trading member with respect to purchase/sale andand the trading member with respect to purchase/sale andsettlement of trades.settlement of trades.

It also helps to settle disputes/claims between the investor andIt also helps to settle disputes/claims between the investor andthe trading member. It is a prerequisite for filing a complaint orthe trading member. It is a prerequisite for filing a complaint orarbitration proceeding against the trading member in case of aarbitration proceeding against the trading member in case of adispute.dispute.

A valid contract note should be in the prescribed form, containA valid contract note should be in the prescribed form, contain

the details of trades, stamped with requisite value and dulythe details of trades, stamped with requisite value and dulysigned by the authorized signatory. Contract notes are kept insigned by the authorized signatory. Contract notes are kept induplicate, the trading member and the client should keep oneduplicate, the trading member and the client should keep onecopy each.copy each.

After verifying the details contained therein, the client keepsAfter verifying the details contained therein, the client keepsone copy and returns the second copy to the trading memberone copy and returns the second copy to the trading memberduly acknowledged by him.duly acknowledged by him.


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PRODUCTS IN THE SECONDARYPRODUCTS IN THE SECONDARY

MARKETSMARKETS

Equity SharesEquity Shares

Rights Issue/ Rights SharesRights Issue/ Rights Shares

Preference sharesPreference shares Cumulative Preference SharesCumulative Preference Shares

BondsBonds

Zero Coupon BondsZero Coupon Bonds Convertible BondsConvertible Bonds

Treasury BillsTreasury Bills


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DERIVATIVESDERIVATIVES

Types of DerivativesTypes of Derivatives

ForwardsForwards

FuturesFutures

OptionsOptions

WarrantsWarrants SwapsSwaps


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MUTUAL FUNDSMUTUAL FUNDS

Regulatory Body for Mutual Funds:Regulatory Body for Mutual Funds:Securities Exchange Board of India (SEBI) is the regulatorySecurities Exchange Board of India (SEBI) is the regulatorybody for all thebody for all the

mutual funds. All the mutual funds must get registeredmutual funds. All the mutual funds must get registeredwith SEBI.with SEBI. Benefits of investing in Mutual Funds:Benefits of investing in Mutual Funds: Small investmentsSmall investments Professional Fund ManagementProfessional Fund Management Spreading RiskSpreading Risk TransparencyTransparency ChoiceChoice RegulationsRegulations


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Types of Mutual fundsTypes of Mutual funds

A) ON THE BASIS OF OBJECTIVEA) ON THE BASIS OF OBJECTIVE

Equity Funds/ Growth FundsEquity Funds/ Growth Funds

Sector fundsSector funds Tax Saving FundsTax Saving Funds Liquid Funds/Money Market FundsLiquid Funds/Money Market Funds Gilt FundsGilt Funds Balanced FundsBalanced Funds

B) ON THE BASIS OF FLEXIBILITYB) ON THE BASIS OF FLEXIBILITY Open-ended FundsOpen-ended Funds Close-ended FundsClose-ended Funds


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CONCLUSIONCONCLUSION

Like the money market, the Indian capital market also consists of anLike the money market, the Indian capital market also consists of anorganized sector and an unorganised sector.organized sector and an unorganised sector.

In the organized market the demand for capital comes mostly fromIn the organized market the demand for capital comes mostly fromcorporate enterprises and government and semi-governmentcorporate enterprises and government and semi-governmentinstitutions and the supply comes from household savings,institutions and the supply comes from household savings,

institutional investors like banks investment trusts, insuranceinstitutional investors like banks investment trusts, insurancecompanies, finance corporations, government and internationalcompanies, finance corporations, government and internationalfinancing agencies. Whereas, the unorganized market consistsfinancing agencies. Whereas, the unorganized market consistsmostly of the indigenous bankers and moneylenders on the supplymostly of the indigenous bankers and moneylenders on the supplyside.side.

The Indian capital market has undergone remarkable changes inThe Indian capital market has undergone remarkable changes in

the post-independence era. Certain steps taken by the governmentthe post-independence era. Certain steps taken by the governmentto place the market on a strong footing and develop it to meet theto place the market on a strong footing and develop it to meet thegrowing capital requirements of fast industrialization andgrowing capital requirements of fast industrialization anddevelopment of the economy have significantly contributed to thedevelopment of the economy have significantly contributed to thedevelopments that took place in the Indian capital market over thedevelopments that took place in the Indian capital market over thelast five decades or so.last five decades or so.


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Important facts that contributed toImportant facts that contributed to

development of the capital marketingdevelopment of the capital marketing

IndiaIndia

1. Legislative measures:1. Legislative measures:

2. Establishment of development banks and expansion2. Establishment of development banks and expansionof the public sectors:of the public sectors:

3. Growth of underwriting business:3. Growth of underwriting business:

4. Public confidence:4. Public confidence:

5. Increasing awareness of investment opportunities:5. Increasing awareness of investment opportunities:

Documents

Capital Market Pres