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Capital market plays a

catalytic role
A vibrant capital market
is a function of economic
growth
 The capital market
consists primarily of the
debt and equity markets.
Historically, it contributed
significantly to mobilising
funds to meet public and
private companies’
financing requirements

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 Capital Market an engine for
growth
 Economic growth by mobilising savings
of economic sectors and directing same
towards channels of productive uses
 Issue of primary securities
 Issue of secondary securities
 Secondary Market Transactions to
facilitate liquidity

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 WHAT IS A CAPITAL
MARKET ?
 Market where government and companies
can raise long term funds
 Market for all the financial instruments,
short term and long term such as
commercial industrial and government
paper
 Borrowing and lending of long term funds
takes place
 Consist of Primary and Secondary markets

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 INVESTORS IN CAPITAL
MARKET
 Individual
 Corporate
 Governments
 Foreign Companies
 Banks
 Provident Funds
 Financial
Institutions

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 INTERMEDIARIES IN
CAPITAL MARKET
 Stock exchanges
 Banks
 Investment trust and
companies
 Development banks
 Mutual funds
 Non banking financial
institutions
 International Financial
Investors and
Institutions.

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 MARKET STRUCTURE
 22 Stock Exchanges, 15 Subsidiaries
 Over 10000 Electronic Terminals at over 400 locations all over India
 9394 Stock Brokers and 23148 Sub brokers
 5892 Listed Companies
 2 Depositories and 494 Depository Participants
 138 Merchant Bankers
 55 Underwriters
 32 Debenture Trustees
 139 Portfolio Managers
 83 Registrars & Transfer Agents
 60 Bankers to an Issue
 4 Credit Rating Agencies

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 MARKET STRUCTURE

 Venture Capital Funds

 39 Foreign
 80 Domestic
 38 Mutual Funds and 479 Schemes
 Asset Base: US $ 44.94 bln
 928 Foreign institutional investors
 Cumulative FII investment - US$ 44.17 bln

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 ROLE OF CAPITAL
MARKET
 Capital formation
 Economic growth
 Development of backward areas
 Generates employment
 Long term capital to industrial sector
 Generation of foreign capital
 Developing role of financial insititutions
 Investment opportunities

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 Who Owns How Much?

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 Capital Market
 It is an important constituent of
financial system.
 It is a market for long term funds both
equity & debt
 Funds are raised within the country as
well as outside the country

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 All Over Again
Capital Market -- The market for relatively long-term
(greater than one year original maturity) financial
instruments.
Primary Market -- A market where new securities are
bought and sold for the first time (a “new issues”
market).
Secondary Market -- A market for existing (used)
securities rather than new issues.

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 Fund raising can be classified as
 Public Issue by prospectus
 Private Placement
 Right Issue

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 Private Placement
Private (or Direct) Placement -- The sale of an
entire issue of unregistered securities (usually
bonds) directly to one purchaser or a group of
purchasers (usually financial intermediaries).
 Eliminates the underwriting function of the investment
banker.
 The dominant private placement lender in this group is the
life-insurance category (pension funds and bank trust
departments are very active as well).

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 Secondary Market
 A market for outstanding securities
 An equity instrument provides an all
time market
 Debt instrument is traded till maturity

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 Two parts
 Secondary market for corporates &
financial intermediaries through-
Recognised Stock Exchanges
NSE
OTCEI
 Participants- Regd brokers both individuals
and institutions,operated through sub
brokers & sub dealers
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 Nature of Fund raising in Primary market

Domestic
Equities, Debt Instruments
External
Equity GDR,ADR
Debt Inst ECB
Other External Borrowings
FDI - Equity & Debt
FII - portfolio invst
NRI - short,medium term deposits

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 Sarbanes-Oxley
Act of 2002

Sarbanes-Oxley Act of 2002 (SOX) –

Addresses, among other issues, corporate
governance, auditing and accounting,
executive compensation, and enhanced and
timely disclosure of corporate information.

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 Are Banks really the
Big players in Capital
Market in India ?

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 Banks in India have statutory
/ regulatory restrictions
 As per regulatory norms, banks are
allowed to take exposure to the
capital market up to 40 per cent of
their networth. It includes the
bank’s direct investment in equity,
its proprietary holding, investment
in equity mutual funds, and
advances to brokers.
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 Sensitive Sector Exposure
 Total exposure of SCBs to the
sensitive sectors constituted 20.4
per cent of aggregate bank loans
and advances (comprising 18.7 per
cent to real estate, 1.5 per cent to
the capital market and 0.1 per cent
to commodities) as compared with
18.8 per cent last year.

Source Trend & Progress Of Banking –RBI Publication

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12/07/21 22
 Source Trend & Progress of Banking
12/07/21 RBI publication 23
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 Nexus between Broker/s
& Bank
 To avoid any nexus emerging between
inter-connected stock broking entities
and banks, the RBI has authorised
boards of each bank to fix, within
overall ceiling of 40% of their net worth
as on March 31 of previous year, a sub-
ceiling for total advances to stock
brokers and to any single stock broking
entity and its associates.

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 Margin requirement for Bank
guarantee for capital Market
operations
 The guidelines prescribe a uniform
margin of 50% to be applied on all
advances/financing of IPOs/issue of
guarantees for capital market
operations and a minimum cash margin
of 25% (within the margin of 50%) to
be maintained in respect of guarantees
issued by banks for capital market
operations.

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 Looking to pledge
securities with a bank?
 You will now get only up to Rs 20 lakh
loans against shares from the entire
banking system. However, these shares
would have to be held in the
dematerialised form. For shares held in
the physical form you would only get Rs
10 lakh. Thanks to RBI's revised
guidelines on banks capital market
exposure. These guidelines are with
effect from April 1, 2007.

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 Equity Investors Money
Misused
 In the recent market downslide, small
investors are the worst affected. To add
to their woes, unscrupulous brokers
use this opportunity to misuse their
clients' money. There are many cases of
brokers using investor money for intra-
day trading without prior knowledge of
the investor. Equity investors must be
made aware of such unfair practices.

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 Who is actually swinging
the balance?
 The Sensex had peaked at 18,845 (before
correcting to 18,419.04 in subsequent
trading sessions). Boosted by robust
flows from foreign institutional investors
(FIIs), of $7 billion (Rs 28,846 crore)
between September 19 and October 11,
2007 the benchmark index pole vaulted
from 15,500 to close to 18,850 —that’s a
jump of 22 per cent in just 16 trading
sessions.

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 FII INVESTMENT IN INDIA
 Simple and speedy registration process
 Minimum registration formalities
 956 FIIs registered as on Aug 2006
 3000 sub accounts registered as on Aug-2006
 FII are from across jurisdiction & include pension
funds & university endowments etc. like CALPERS &
Harvard University
 Cumulative net FII Investment- US$ 44.17

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FII INVESTMENT
2.5 45
(US$bn) (US$bn)
40
2.0
Cumulative FII investment = US$ 44.15 bn
Number of registered FIIs =956 35
1.5
30

1.0 25

0.5 20

15
0.0
10
(0.5)
5

(1.0) 0
93 93 94 94 95 95 96 96 97 97 98 98 99 99 00 00 01 01 02 02 03 03 04 04 05 05 06

Monthly FII investment (LHS) Cumulative FII investment (RHS)

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 FIIs shying away?
This year so far, FIIs have sold
equities worth Rs13,693 crore
in India
 They had bought Rs 17,288
crore in the same period last
year
 The rapid fall in the rupee
has seriously skewed the math.
There are markets which are
going up, such as Brazil and
Taiwan Why should an
investor leave them and
come here?

DNA 28-05-08

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12/07/21 ET23-09-08
33
JULY 2009

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 Dooms day is not far off
 Nouriel Roubini, professor of economics at
New York University’s Stern School of
Business, calls it the worst financial crisis
since the Great Depression. And he paints
a frightening picture: when the dust
settles, credit losses will be close to $2
trillion — about two years worth of India’s
GDP — and the failure of hundreds of
small banks all over the US (by his
estimate, 67 per cent of the assets on
small banks’ books are housing loans).

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THANK YOU
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