Download India Capital Market Update

CAPITAL MARKET
 PROLOGUE
 DEFINITION OF CAPITAL MARKET
 FEATURES
 MAIN ELEMENTS
 STOCK MARKET
 INDIAN ECONOMY AND CAPITAL MARKET AT A
GLANCE
 WHY INVEST IN INDIAN CAPITAL MARKETS?
 CONCLUSION
CAPITAL MARKET
WHAT IS CAPITAL
MARKET
?
CAPITAL MARKET
PROLOGUE
Capital markets are a sub-part of the financial
system. Conceptually, the financial system
includes a complex of institutions and
mechanism which affects includes a complex of
institutions and mechanism which affects the
generation of savings and their transfers to
those who will invest. It may be said to be made
of all those channels through which savings
become available for investments
CAPITAL MARKET
DEFINATION OF CAPITAL MARKET
Capital market can be defined as:
“A market for medium to long-term
financial instruments. Financial instruments
traded in the capital market include shares, and
bonds issued by the Australian Government,
State governments, corporate borrowers and
financial institutions.”
CAPITAL MARKET
In other words:
“The capital market (securities markets) is
the market for securities, where
companies and the government can raise
long-term funds. The capital market
includes the stock market and the bond
market”
CAPITAL MARKET
FEATURES
Engine of growth
Best regulated market
Efficient capital
securities markets
Increasing integration
CAPITAL MARKET
regulatory framework
MAIN ELEMENTS
OF
CAPITAL MARMET
CAPITAL MARKET
THREE ELEMENTS OF CAPITAL MARKET
 FINANCIAL ASSETS/INSTRUMENTS/SECURITIES
 FINANCIAL INTERMEDIARIES
 FINANCIAL MARKETS
CAPITAL MARKET
THE MAIN ELEMENTS
FINANCIAL ASSETS/ INSTRUMENTS/SECURITIES
The tangible/physical asset is one whose value depends
on its physical properties such as buildings, machines,
furniture, vehicles and so on.
The entity/economic unit
that offers the future cash flows is the issuer of the
financial ‘instrument’ and the owner of the security is
the investor. Depending upon the nature of claim/return,
an instrument may be:
CAPITAL MARKET
 DEBENTURE/BONDS: Debenture/bonds is a debt
instrument indicating that a company has borrowed
certain sum of money and promise to repay it in future
under clearly defined terms.
 TRUST(BOND)INDENTURE: is a complex and
lengthy legal document starting the conditions under
which a bond has been issued.
CAPITAL MARKET
 DEBENTURE REDEMPTION RESERVE: is a
requirement in a debenture indenture providing for the
systematic retirement of debenture/bonds prior to their
maturity.
 TERM LOANS: is a loan made by a bank/financial
institution to a business having an initial maturity of
more than I year:
CAPITAL MARKET
EQUITY CAPITAL:
Equity capital represents ownership capital, as equity
shareholder collectively own the company. They
enjoy the rewards and risks of ownership.
SOME TERMS:
 AUTHORISED EQUITY/SHARE CAPITAL: is
the
number of ordinary share capital that a firm can
raise without further shareholder approval.
CAPITAL MARKET
ISSUED SHARE CAPITAL: The portion of the authorized
capital offered by the company to the investors is the
Issued capital.
 SUBSCRIBED SHARE CAPITAL: is the number of
share (capital) outstanding.
 PPREFERENCE SHARE CAPITAL: is a unique type of
long term financing in that combines some of the features
of equity as well as debenture. It carries a fixed rate of
dividend and it ranks higher than equity as a claimant to
the income/assets.
CAPITAL MARKET
 INITIAL PUBLIC OFFERING(IPO):
The first issue of the equity share to the public by an
unlisted company is called Initial Public Offerings(IPO).
CAPITAL MARKET
 CUMULATIVE(DIVIDEND)PREFERENCE SHARES:
are preference shares for which all unpaid dividends in
arrears must be paid along with the current dividend prior
to the payment of dividends to ordinary shareholders.
 STRAIGHT PREFERENCE SHARE VALUE/PRICE: is
the price at which a preference share would sell without
the redemption /call feature.
 CONVERTIBILITY: Preference share capital may
sometimes be convertible partly/fully into equity
shares/debentures at a certain ratio during a specified
period. A variant in India is cumulative convertible
preference shares which combine the cumulative and
MARKET
convertibility features. ItCAPITAL
has, however,
been a non-starter
so far.
 CONVERTIBLE DEBENTURES: give the holders the
right (option) to change them into a stated number of
shares.
 COVERSION RATIO: is the ratio at which a
convertible debenture can be exchanged for shares.
 CONVERSION PRICE: is the per share price that is
effectively paid for the shares as the result of exchange
of a convertible debenture.
CAPITAL MARKET

FINANCIAL INTERMEDIARIES:
Financial intermediaries are institutions that channelise
the savings if investors into investments/loans. As
institutional source of finance ,they act as a link
between the savers and the investors which results in
institutionalization of personal savings. Their main
functions is to convert direct financial assets into
indirect securities. The indirect securities offer to
the individual investor better investor alternative then
the direct/primary security by pooling which it is
created, for example, units of mutual funds.
CAPITAL MARKET
 FINANCIAL MARKETS:
Financial markets perform a crucial function in the
financial system as facilitating organizations. Unlike
financial intermediaries, they are not a source of funds
but are a link and provide a forum in which suppliers of
funds and demanders of loans/investments can transact
business directly
CAPITAL MARKET
The two key financial markets are the money markets
and the securities markets:
 money market: is created by financial relationship
between suppliers and demanders of short term funds
having maturities of one year or less.
 securities markets: is a financial relationship created by
a number of institutions and arrangements that allows
suppliers and demanders of long term funds with
maturities exceeding one year to make transactions.
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TYPES OF MARKET
 PRIMARY MARKET
 SECONDARY MARKET
CAPITAL MARKET
PRIMARY MARKET
–
The primary market deals with the issue of new
instruments by the corporate sector such as equity
shares, preference shares and debentures.
– Function of primary marketORIGINATION: is the work of investigation and
analysis and processing of new issue proposals.
UNDERWRITING: is a form of guarantee that the new
issue would be sold by eliminating the risk arising
from uncertainty of public response
.
MARKET
DISTRIBUTION: isCAPITAL
the sale
of the ultimate investors.
…
CONTD
 Abolition of Controller of Capital Issues in 1992.
 Constitution of Securities and Exchange Board of India





(SEBI) as the apex regulator.
for capital markets.
Free pricing of equity.
Introduction of book building for raising capital
Relaxation in equity dilution norms allowing large unlisted
firms esp. in the technology.
Progressive changes in the entry norms enabling all
companies to access markets.
CAPITAL MARKET
…
CONTD
….But subject to high disclosure norms and QIB
participation
 Domestic equity raised in last three years at Rs630 bn is
twice the amount
 Raised during the preceding decade Rs364 bn
 Problem of vanishing companies witnessed in mid nineties
now well taken Care of with strict disclosure norms and
regulatory supervision
CAPITAL MARKET
SECONDARY MARKETS
…

Stock exchanges discharge three vital functions in the
orderly growth of capital formation:
1.
Nexus between savings and investments
2.
Market place and
3.
Continuous price formation
CAPITAL MARKET
CAPITAL MARKET AT A GLANCE
 Second fastest growing economies after China with an
average annual growth rate of more than 8 per cent in the
last three years.
 Indian companies may issue shares under Employee Stock
Option Scheme to its employees who are resident outside.
 Foreign Institutional Investors are allowed to invest in
India under the Foreign Institutional Investment scheme.
 Private equity is allowed as an alternative form of
investment
CAPITAL MARKET
…
COND
 NSE (India’s National Stock Exchange) is the third largest
in the world in the number of trades after NYSE and
NASDAQ.
 India has 23 small and 2 big stock exchanges.
 The 2 big stock exchanges (National Stock Exchange and
Bombay Stock Exchange) account for 90 per cent of trade.
 Over 7000 listed companies on the stock exchanges –
largest in the world.
CAPITAL MARKET
…
COND
 39 mutual funds with over 500 schemes for investment.
 There are 86 venture capital funds and 54 foreign venture






capital investors.
FIIs can invest on behalf of their clients through subaccounts.
For normal FIIs, limit for investment in equity is at least 70
per cent while the rest could be invested in debt up to a
maximum limit of 30 per cent.
9040 brokers in cash segment and 1064 in derivative
segment of the market.
122 investment bankers in the market.
58 under writers to support primary issues.
34 foreign venture capital funds &120 Portfolio managers
CAPITAL MARKET
WHY TO INVEST IN INDIAN
CAPITAL MARKET
?
CAPITAL MARKET
BECAUSE:
 India’s accounting standards are closer to international
standards.
 SEBI has made corporate governance guidelines
mandatory for listed companies.
 Mutual funds are permitted to invest overseas up to $3
billion.
 Almost 100 per cent risk free electronic settlement
through depository system .
CAPITAL MARKET
CONTD….
 In India the transactions are totally electronic on a real
time basis.
 Business Week says that of 100 emerging market firms
which are rapidly globalizing 21 are Indian firms.
 Economists project India to become the third largest
economy in the world by 2040.
CAPITAL MARKET
CONCLUSION
 Indian markets amongst the best
regulated markets in the world.
 Need for greater integration with
international markets in terms of
capital flows, products and processes
 Need to introduce new age financial
products and to encourage.
 participation of new age investors.
CAPITAL MARKET
THANK YOU
CAPITAL MARKET