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8/4/2019 Smita (Opp&Cha)
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Indian Securities Market :
What it was, What it is now
Opportunities
Challenges
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Indian Securities Market
Pre 1992 Post 1992
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Restrictions on foreign investment
License raj, Poor governance
Open outcry trading system
Longer settlement period
Unregulated Merchant Bankers, intermediaries Investor protection was much on paper than in
reality
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Reforms : liberalization , globalization,
privatization
Opening up the financial sector for foreigninvestment
SEBI was formed
Regional exchanges lost their relevance entiremarket share divided between NSE and BSE
Electronic era
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WHY 1992?
HINT?
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Primary Market - new issues mkt (IPO, FPO)
Secondary Market (stocks, bonds)
Derivatives Market (F&O in : indices andequity shares )
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Benjamin Graham
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Components ofSecurities Market
SecuritiesShares, Bonds,
Debentures, F&O,Mutual Funds
Intermediaries
Brokers, Sub Brokers,Custodians, Transferagents, M.B., Stock
Exchanges
Issuers
Companies,
Government, FinancialInstitutions, Mutual
Funds, Banks
InvestorsIndividuals, Companies,
M.F.s, Fls, FIIs
Market RegulatorsSEBI, DEA, DCA, RBI,
Stock Exchanges
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In the recent past, the Indian securities market has seenmulti-faceted growth in terms of :
Technology enabling faster movements of funds (EFT facility)
Dematerialization of shares, reduced settlement cycles
Clearing houses set up by each of the stock exchanges (NSCCLof NSE) have reduced the counter-party risk
Risk management mechanisms (Capital adequacy
requirements, trading and exposure limits, daily margins,M2M)
Indian companies can now raise funds freely from theinternational capital markets, via ADR, GDR, FCCB
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Futures and Options on benchmark indices as wellas stocks
Futures on interest rate products such as Notional91-Day T-Bills, 10-Year Notional Zero CouponBond, and 6% Notional 10-Year Bond
Number of stock exchanges and otherintermediaries
Number of listed stocks
Amount raised from the market and the Market
capitalization Trading volumes and turnover on stock exchanges
Investor population and Participants
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Stocks
shortest route to the largest wealth creationfor the long term.
current situation offers a lifetime opportunity
to make long-term wealth WHY?
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By the end of this decade, Sensex is expected
to grow from the current level of 18,000 to asix-digit figure
Corporate earnings have grown at around
three times the GDP growth
Companies can clock 25- 27% annual growth
Indias domestic demand will continue to rise
FIIs turning to India, due to its sustained high
growth
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Single biggest vehicle of transporting retail investorssavings into stocks and debt instruments
Funds represent all the goodness of stock market,
but at lesser risk A good equity fund rises faster than the market and
falls slower
Online analytical tools available now
Generating 15-17% annual returns is much easier,BUT only in the long-term
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For growth, investors must choose a mix of large-
cap, mid- cap, small-cap and value-style (sectoal)
funds.
Even if funds were to grow at the rate of the past
five years, you will make a lot of wealth :
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John Keynes
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Till now, fixed incomedebt instruments act as
a safety net,
with products such as
FDs & PPF
But slowly; Debt funds,
Corporate bonds andBlended products will
dominate
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Corporate bonds - a good mix of attractive
returns and relative safety , issued by rapidlyexpanding companies in need of money
In the next few years, retail investors may be
allowed to trade bonds. This will add the liquidityquotient to your debt cushion
Blended products - An imp. component of PMS,
these products blend equity, debt and gold toconserve capital and provide exposure to bull
runs simultaneously
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Developments in IPO Market the IPO mkt is
largely paper based even today. Technical
automation will be a big enabler, with speedyprocessings. Also, widespread use of ASBA
Penetrating use of new products like Interest rate
futures, Currency Futures, etc. Allowing institutional investors to participate in
Commodity markets
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1. India's GDP
Stock markets eventually depend on the health
of the economy, which is best captured in three
letters: GDP
So any slowdown in the economy will impact themarkets and moderate gains.
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2. Inflation
a double-edged sword
it is projected to remain high for most of 2011
food inflation will affect Indias consumption
higher inflation, higher the interest rates, which
means higher costs for corporates
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3. Crude prices Brent Crude has already hit $120 a barrel
Retail prices of petrol will rise even further, since
government isnt subsidising it any more
More fundamentally, higher crude price will hurtthe 2011-12 GDP growth, and in turn market
sentiments
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4. Scams & Frauds
CWG, Adarsh, 2G, it goes on
Scams affect the market negatively, and destroy
investor sentiments, national image
Evidenced by the Harshad Mehta Scam in 1990sand the Ketan Parekh Scam in 2000s
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2008 Jan :US Economy Crisis 2010 May: European Debt Crisis (PIGS)
2011 Jan-Feb : Middle East Political Crisis
2011 March 11 : Japan Natural Disasters
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