OVERVIEW OF CAPITAL MARKET

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INVESTMENT
A sacrifice now to obtain a return later


Real investment: machinery, etc.

purchase

of

land,

Financial investment: purchase of "paper" contract.

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Why Do Individuals Invest ?

By saving money (instead of spending it), individuals tradeoff present consumption for a larger future consumption.

How Do We Measure The Rate of Return on an Investment ?



1-4

The pure rate of interest is the exchange rate between future consumption (future rupees) and present consumption (current rupees). Market forces determine this rate. People willingness to pay the difference for borrowing today and their desire to receive a surplus on their savings give rise to an interest rate referred to as the pure time value of money.

1-5

Contd


If the future payment will be diminished in value because of inflation, then the investor will demand an interest rate higher than the pure time value of money to also cover the expected inflation expense. If the future payment from the investment is not certain, the investor will demand an interest rate that exceeds the pure time value of money plus the inflation rate to provide a risk premium to cover the investment risk.

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Defining an Investment
a commitment of funds made in the expectation of some positive rate of return


Investment is the current commitment of amount in order to derive future payment that will compensate the investor for:
  

The time The expected rate of inflation The uncertainty of future payments

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Characteristics of Investment
 

RETURN: Expectation of return . Yield + capital appreciation. RISK: Risk is inherent in investment. Risk may be loss of capital , delay in repayment of capital, nonpayment of interest, variability of returns. SAFETY: certainty of return of capital without loss of money or time. Safety feature is desired for investments. LIQUIDITY: Saleable / marketable without loss of money or time. TAX BENEFITS : Its not what you make, its what you keep that is important. Tax Planning Involves:  The desired return after-taxes  Type of income received from investments

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Types of Investments


Securities or Property
  

Securities: stocks, bonds, options Real Property: land, buildings Tangible Personal Property: gold, silver, antiques Direct: investor directly acquires a claim Indirect: investor owns an interest in a professionally managed collection of securities or properties

Direct or Indirect


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Types of Investments (cont'd)



Debt, Equity or Derivative Securities



Debt: investor lends funds in exchange for interest income and repayment of loan in future (bonds) Equity: represents ongoing ownership in a business or property (common stocks) Derivative Securities: neither debt nor equity; derive value from an underlying asset (options)

Low Risk or High Risk



Risk: chance that actual investment returns will differ from those expected

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Types of Investments (cont'd)



Short-Term or Long-Term
 

Short-Term: mature within one year Long-Term: maturities of longer than a year

Domestic or Foreign
 

Domestic: U.S.-based companies Foreign: foreign-based companies

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Investment vs. Speculation



Risk: Possibility of incurring loss. Risk is related to Return. Higher return Higher risk. Investor normally opts for low risk whereas speculator for high risk to get high returns. Capital Gain: Speculator interested gain .; Buying low and Selling high. in capital

Time period: Investment is long term whereas speculation is short term. Both investment & speculation aim returns diff being motives & methods. at good

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Investment vs Gambling


Gambling are horse races, card games, lotteries etc. Gambling consists in taking high risk not only for high returns but also for thrill & excitement. Gambling is unplanned & non scientific. It is surrounded by uncertainty and based on tips and rumours. Investment - plan, evaluate and allocate funds to various investment which offer safety of principal and moderate and continuous return over a long period of time.

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Types of Investors


Individuals & Institutions Individual large in number but investable resources are smaller. They lack skill to extensive evaluation and analysis . They do not have time and resources . Institutions like Mutual funds, investment companies, banking and non-banking , insurance etc with large amounts of surplus funds . Fewer in number but investable resources larger.

Type of Investors: According to Personality 1-14

1. Measured Investor
Your personality is loosing your money-not the market
Characteristics


The measured investor starts investing early, enjoys investing and is happy with his or her current financial situation

Strengths
   

Regularly rebalances his or her portfolio Invests regularly Avoids concentration in a single investment Is committed to an investing plan

Weakness
 

Holds losers too long Does not take profits

Type of Investors: According to Personality 1-15

2. Reluctant Investor
Characteristics


The reluctant investor doesnt enjoy investing and prefer to spend as little time as possible on his or her investments. However, the reluctant investor is confident that he or she will have a comfortable retirement.

Strengths
  

Get rid of investment that are losing Doesnt chase hot investment Avoids concentration of a portfolio in a single investment

Weakness
  

Invests too little and too late Doesnt invest regularly, even they have money Doesnt regularly rebalances his or her portfolio

Type of Investors: According to Personality 1-16

3. Competitive Investor
Characteristics


The competitive investor enjoys investing, but makes a habit of trying to beat the market. This investor is happy with his or her current situation and is confident about the future.

Strengths
  

Regularly rebalances his or her portfolio Invests regularly Puts as much money as possible into his or her investments

Weakness
  

Holds losers too long and does not take profits Fails to adequately diversify his or her investments Is over-confident and chases hot investments

Type of Investors: According to Personality 1-17

4. Unprepared Investor
Characteristics


The unprepared investor tends to put off investing. This investor is not happy with his or her current financial situation and prospects for a secure retirement, and lacks confidence in his or her investment ability.

Strengths


Understands the importance of investing and is willing to learneven though he or she can a slow starter

Weakness
   

Invests too little, too late and not regularly Holds losers too long Doesnt regularly rebalances his or her portfolio Ignore taxes and expenses

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Type of Investors: According to Personality

There are five types of investors that fit well within the investment club structure:

1. The "I'm not ready to go out on my own!" Investor: This investor is someone who just does not yet have the expertise or knowledge required to be successful in any market. By participating in an investment club, this investor will learn from a pool of like-minded people on how best to invest their money, make smart financial decisions, and manage their money.

Type of Investors: According to Personality (Contd .)

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2. The "I am passionate about learning new things!" Investor: This investor is a person that loves to continually expand their world with new things, new ideas, and new people. Investment clubs are designed to explore the wide world of investing and educate members by having them participate first-hand.

Type of Investors: According to Personality (Contd .)

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3. The "I love to socialize AND make money!" Investor: Some people join investment clubs simply because they enjoy meeting new people, team problem-solving, team planning. With online investment clubs being all the rage, people from anywhere in the world are able to participate, pool their resources, and have fun doing it.

Type of Investors: According to Personality (Contd )

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4. The "I want to make extra money for college/retirement/vacations" Investor: These days, it seems that everyone is looking for ways to supplement their income. It could be to pay for tuition or plan retirement or even to add to a limited income due to retirement. An investing club offers direction and education, and that helps avoid the dangers of a trial and error approach.

Type of Investors: According to Personality (Contd )

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5. The "I want to invest but do not have a large amount of funds to start with" Investor: Most people don't have large sums of money sitting around, but they do have an extra Rs.200 a month to add to a pool of money to be invested as a whole. Given that starting out alone with such a small initial outlay can prove near impossible, pooling resources with an investment club is an ideal solution.

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The Investment Process

A description of the process is:
1. Set investment policy  Objectives  Amount  Choice of assets / investible funds 2. Conduct security analysis  Conduct Market, Industry & Company analysis  Examine securities (identify those which are mispriced?)

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The Investment Process (contd )

3. Portfolio Construction
 

Identify assets Choose extent of diversification

4. Portfolio Evaluation


Assess the performance of portfolio

5. Portfolio Revision


Repeat previous three steps

INDIAN SECURITIES MARKET

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What and Why of Securities Market?



In every economic System, some units which may be individual or Institution are surplus-generating while others are deficit-generating. Surplus-Generating Units are called Savers while Deficit-generating units are called spenders. Households Corporates generators. are and surplus-generating and Government are deficit

By placing the surplus funds in Financial claims or Financial securities the Spending community gets funds at a cost and saving community gets various benefits like interest, dividend, capital appreciation, Bonus etc.

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CONTD ..


The Surplus generating units (Savers) are investors and Deficit generating units (spenders) are issuers. These investors and issuers of financial securities constitute two important elements of the securities markets. The third critical element of markets is the intermediaries who act as conduits between the investors and issuers. Regulatory bodies, which regulate the functioning of the securities markets, constitute the last but very significant element of securities markets.

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Securities Market in India

Thus the four important elements of securities markets are:

Investors  Issuers  Intermediaries  Regulators



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Need of Securities Market

Securities market provides channel for reallocation of savings to investments and entrepreneurship.
 

Savers and investors are not constrained by individual abilities but by economys abilities to invest and save.

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Types of Types of Financial Markets Financial Markets Types of Financial Markets Types of Financial Markets

Types of Financial Markets

Money Market
T-Bills Call Money Repos, CP, CD

Capital Market
Equity Debt

Forex Market
Spots Forwards

Derivatives Market
Agriculture Produces, Metals, Financial futures like Interest rate, currency, indices etc

Retail Corporate Banks FI FIIs

Banks Corporate FI, FIIs

Banks Corporate FI, FIIs

Banks, FIs Corporate

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Financial System
Financial Institutions Commercial Banks Insurance Companies Funds Mutual Funds Funds Provident/Pension Funds Deposits Non-banking Financial Companies Loans Shares Securities Funds Suppliers of Funds Individuals Businesses Governments Funds Demanders of Funds Individuals Businesses Securities Governments Funds Securities

Private Placement

Funds Securities Financial Markets Money Market Capital Market

1-32

Functions of Financial Market



It provides facilities for interaction between the investors and the borrowers. It provides pricing information resulting from the interaction between buyers and sellers in the market when they trade the financial assets. It provides security to dealings in financial assets. It ensures liquidity by providing a mechanism for an investor to sell the financial assets. It ensures low cost of transactions and information.

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Types of Financial Market



A financial market consists of two major segments:

Money Market  Capital Market



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Money Market


The money market is a market for shortterm funds, which deals in financial assets whose period of maturity is upto one year. It should be noted that money market does not deal in cash or money as such but simply provides a market for credit instruments such as bills of exchange, promissory notes, commercial paper, treasury bills, etc.

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Money Market Instruments

Following are some of the important money market instruments or securities:
1. Call Money
Call money is mainly used by the banks to meet their temporary requirement of cash. They borrow and lend money from each other normally on a daily basis. It is repayable on demand and its maturity period varies in between one day to a fortnight. The rate of interest paid on call money loan is known as call rate.

1-36

Money Market Instruments contd

2. Treasury Bill


A treasury bill is a promissory note issued by the RBI to meet the short-term requirement of funds. Treasury bills are highly liquid instruments, that means, at any time the holder of treasury bills can transfer of or get it discounted from RBI. These bills are normally issued at a price less than their face value; and redeemed at face value. So the difference between the issue price and the face value of the treasury bill represents the interest on the investment. These bills are secured instruments and are issued for a period of not exceeding 364 days.

1-37

Money Market Instruments contd

3. Commercial Paper


Commercial paper (CP) is a popular instrument for financing working capital requirements of companies. The CP is an unsecured instrument issued in the form of promissory note. This instrument was introduced in 1990 to enable the corporate borrowers to raise short-term funds. It can be issued for period ranging from 15 days to one year. Commercial papers are transferable by endorsement and delivery. The highly reputed companies (Blue Chip companies) are the major player of commercial paper market.

1-38

Money Market Instruments contd

4. Certificate of Deposit


Certificate of Deposit (CDs) are short-term instruments issued by Commercial Banks and Special Financial Institutions (SFIs), which are freely transferable from one party to another. The maturity period of CDs ranges from 91 days to one year. These can be issued to individuals, co-operatives and companies.

5. Promissory Notes


A promissory note is an instrument in writing (not being a bank note or a currency note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument.

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Capital Market


Capital Market may be defined as a market dealing in medium and long-term funds. It is an institutional arrangement for borrowing medium and long-term funds and which provides facilities for marketing and trading of securities. So it constitutes all long-term borrowings from banks and financial institutions, borrowings from foreign markets and raising of capital by issue various securities such as shares debentures, bonds, etc.

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Capital Market contd ..



The market where securities are traded known as Securities market. It consists of two different segments namely primary and secondary market. The primary market deals with new or fresh issue of securities and is, therefore, also known as new issue market. whereas the secondary market provides a place for purchase and sale of existing securities and is often termed as stock market or stock exchange.

1-41

Primary Market


The primary market provides the channel for creation and sale of new securities. In Primary Market, new issues may be made in three ways viz:


Public Issue: involves sale of securities to members of public Right Issue: involves sales of securities of the existing shareholders/debenture holders Private/Preferential Issue: involves selling securities privately to a selected group of investors.

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Primary Market

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Eligibility Norms for Public Issue



Entry Norm I (EN I): The company shall meet the following requirements:

(a) Net Tangible Assets of at least Rs. 3 crores for 3 full years. (b) Distributable profits in at least three years (c) Net worth of at least Rs. 1 crore in three years (d) If change in name, at least 50% revenue for preceding 1 year should be from the new activity. (e) The issue size does not exceed 5 times the pre- issue net worth

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Pricing of Issues


Free Pricing SEBI does not play any role in price fixation. Fixed Price/Book Building The company and merchant banker are however required to give full disclosures of the parameters which they had considered while deciding the issue price.

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Book Building Process



The book-building system is part of Initial Public Offer (IPO) of Indian Capital Market. It was introduced by SEBI on recommendations of Mr. Y.H. Malegam in October 1995. Book Building involves sale of securities to the public and the institutional bidders on the basis of predetermined price range. It is an innovative method of marketing securities involving price determination and quantum of securities on the basis of the demand from the prospective shareholders.

1-46

Book Building Process



A process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built up and the price for the securities is assessed on the basis of the bids obtained for the quantum of securities offered for subscription by the issuer. This method provides an opportunity to the market to discover price for securities.

1-47

Difference between shares offered through book building and offer of shares through normal public issue

Features Pricing

Fixed Price Process

Price at which the securities are offered/allotted is known in advance to the investor

Book Building Process

Price at which securities will be offered/allotted is not known in advance to the investor. Only an indicative price range is known. Demand for the securities offered can be known everyday as the book is built. Payment only after allocation.

Demand

Demand for the securities offered is known only after the closure of the issue Payment if made at the time of subscription wherein refund is given after allocation.

Payment

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Green Shoe Option



An option of allocating shares in excess of the shares included in the public issue. It is an option allowing the issuing company to issue additional shares when the demand is high for the shares when the floatation is on. SEBI guidelines allow the issuing company to accept over subscription, subject to ceiling, say 15% of the offer made to public.

1-49

Promoter


The promoter has been defined as a person or persons who are in over-all control of the company Promoters Contribution should not be less than 20% of post issue of capital in case of offers for sale and public issues by unlisted companies. Exceptions  Public issue of securities listed on a stock exchange for at least 3 years with a dividend payment record of 3 immediate preceding years  No identifiable promoter or group exist  Rights Issue;

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Credit Rating


SEBI Credit rating regulations ACT 1999 Promoted by PFI, SCB, Foreign Banks operating in India, Foreign credit rating agencies with 5 yrs of exp. Minimum Net worth of 5 crores. A CRA cannot rate  A security issued by its promoter


Security issued by an associate , subsidiary ,an associate promoter of CRA if they have a common chairman, director and employees.

For all debt issue greater than or equal to 100 crores , has to be rated by two different agencies.

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ADR/GDR


Method of raising foreign currency resources

 

Foreign Convertible currency bonds ADR/GDR

Depository Receipt negotiable instrument in the form of a certificate denominated in US dollars Certificates are issued by an overseas depository bank against underlying shares deposited by the issuing company with the bank The DRs are issued by the bank to the investors It is a non voting equity holding with all other benefits accrued. Permits cross border trading and settlement , minimize transaction costs and broaden the capital base for Institutional Investors.

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Contd
ADR
Negotiable U S certificate representing ownership of shares in a Non U S corp.. Quoted and traded in $ in U S markets To facilitate the purchase, holding and sale of non U S Securities by U S investors.

GDR
Issued to public or private to markets inside or outside U S Allows issuer to raise capital in two or more markets simultaneously Underlying shares correspond to GDR are fixed in ratio i.e. 1 GDR = 10 shares

ADRs and GDRs are identical in legal, technical ,operational and administrative point of view

STOCK MARKET

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Introduction


It was in 1875 that the Indian Share Market first started functioning. The first share trading association in India was known as the Native Share and Stock Broker's Association, only to become the Bombay Stock Exchange (BSE) later on in 1894. Main components of India Share Market  Bombay Stock Exchange (BSE)  National Stock Exchange (NSE)

1-55

Secondary Market/Stock Market



The secondary market known as stock market or stock exchange plays an equally important role in mobilising longterm funds by providing the necessary liquidity to holdings in shares and debentures. It is an organised market where shares, and debentures are traded regularly with high degree of transparency and security. An active secondary market facilitates the growth of primary market as the investors in the primary market are assured of a continuous market for liquidity of their holdings. The major players in the primary market are merchant bankers, mutual funds, financial institutions, and the individual investors; and in the secondary market you have all these and the stockbrokers who are members of the stock exchange who facilitate the trading.

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Purpose of Stock Market



It helps in the capital formation of the country. It maintains active trading. It increases liquidity of assets. It also helps process. in price recovery

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Distinction b/w Primary and Secondary Market

Points of Difference Primary Market
To raise long-term funds through fresh issue of securities Financial Institutions, mutual funds, underwriters and individual investors.

Secondary Market
To provide continuous and ready market for existing long-term securities. All of these and the stockbrokers who are members of the stock exchange

Function

Participants

Listing Requirement

Listing is not required for Only those securities dealing in the primary can be dealt within the market. secondary market, which have been approved for the purpose (listed) Prices are determined by the management with due compliance with SEBI requirement for new issue of securities. Prices are determined by forces of demand and supply and keep on fluctuating.

Determination of Process

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Stock Exchange


The Securities Contract (Regulation) Act has defined stock exchange as an association, organisation or body of individuals, whether incorporated or not, established for the purpose of assisting, regulating and controlling business of buying, selling and dealing in securities. Stock exchange is the term commonly used for a secondary market, which provide a place where different types of existing securities such as shares, debentures and bonds, government securities can be bought and sold on a regular basis. A stock exchange is generally organised as an association, a society or a company with a limited number of members. It is open only to these members who act as brokers for the buyers and sellers.

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Characteristics of Stock Exchange

The main characteristics of a stock exchange are:
 

It is an organised market. It provides a place where existing and approved securities can be bought and sold easily. In a stock exchange, transactions take place between its members or their authorised agents. All transactions are regulated by rules and by laws of the concerned stock exchange. It makes complete information available to public in regard to prices and volume of transactions taking place every day.

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Functions of a Stock Exchange

The functions of stock exchange can be enumerated as follows:
   

Provides ready and continuous market Provides information about prices and sales Provides safety to dealings and investment Helps in mobilisation of savings and capital formation Barometer of economic and business conditions Better Allocation of funds

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Advantages of Stock Exchange

1. To


the Companies:

The companies whose securities have been listed on a stock exchange enjoy a better goodwill and creditstanding than other companies because they are supposed to be financially sound. The market for their securities is enlarged as the investors all over the world become aware of such securities and have an opportunity to invest As a result of enhanced goodwill and higher demand, the value of their securities increases and their bargaining power in collective ventures, mergers, etc. is enhanced. The companies have the convenience to decide upon the size, price and timing of the issue.

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Advantages of Stock Exchange contd..

2. To


the Investors:

The investors enjoy the ready availability of facility and convenience of buying and selling the securities at will and at an opportune time. Because of the assured safety in dealings at the stock exchange the investors are free from any anxiety about the delivery and payment problems. Availability of regular information on prices of securities traded at the stock exchanges helps them in deciding on the timing of their purchase and sale. It becomes easier for them to raise loans from banks against their holdings in securities traded at the stock exchange because banks prefer them as collateral on account of their liquidity and convenient valuation.

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Advantages of Stock Exchange contd..

3. To


the Society:

The availability of lucrative avenues of investment and the liquidity thereof induces people to save and invest in long-term securities. This leads to increased capital formation in the country. The facility for convenient purchase and sale of securities at the stock exchange provides support to new issue market. This helps in promotion and expansion of industrial activity, which in turn contributes, to increase in the rate of industrial growth. The Stock exchanges facilitate realisation of financial resources to more profitable and growing industrial units where investors can easily increase their investment substantially. The volume of activity at the stock exchanges and the movement of share prices reflect the changing economic health.

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Limitations of Stock Exchange



Scarcity of floating stocks: FIs, banks, and insurance companies own 80% of the equity capital in the private sector. Rampant Speculation: Around 80% of the transactions on the NSE and BSE are speculative in nature. Insider Trading: Obtaining market sensitive information to make money in the markets. Price rigging: Evident in relatively unknown and low quality scrips causes short time fluctuations in the prices.

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Why to invest in Share Market???



An investor does not require a lot of money to start investing in India share market unlike buying property . Time of trading involved spans from small to big. One can trade for a short period of time or even a lengthy span. It helps you to see 'fast' cash if the market is in robust mood and helps in fast liquidation.

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Bulls and Bears ..



BULL Market : Economy is great, GDP is high & Stocks are rising An optimistic person is called a BULL and is said to have a bullish outlook. BEAR Market : Economy is declining, GDP is low & Stocks are falling A pessimist is know as a BEAR and is said to have a bearish outlook.

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Bombay Stock Exchange (BSE)



Bombay Stock Exchange(BSE) is known as the oldest exchange in Asia. In 1956, the BSE became the first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act. The Bombay Stock Exchange developed the BSE Sensex in 1986, In 2000 the BSE used this index to open its derivatives market,

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National Stock Exchange (NSE)



The NSE, located in Bombay, is India's first debt market. It was set up in 1993 to encourage stock exchange reform . It opened for trading in mid-1994. It was recently accorded recognition as a stock exchange by the Department of Company Affairs. The instruments traded are: treasury bills government security and bonds issued by public sector companies.

REGULATORY MECHANISM: SECURITY EXCHANGE BOARD OF INDIA

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What is SEBI?????????


SEBI is the regulator for the security Market in India. In 1988 the Securities and Exchange Board of India (SEBI) was established by the Government of India through an executive resolution, and was subsequently upgraded as a fully autonomous body on April 12, 1992 the Securities and Exchange Board Of India was constituted. It was constituted in accordance with the provisions of the Securities and Exchange Board Of India Act

1-71

PREAMBLE
The Preamble of the Securities and Exchange Board of India describes the basic functions of the Securities and Exchange Board of India as ..to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto.

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Objectives of SEBI


To protect the interests of investors in securities; To promote the Securities Market; development of

To regulate the securities market. It makes rules and regulations for the market.

1-73

Functions of SEBI


Regulating the business in stock exchange and any other securities market Registering and regulating the workings of intermediaries associated with securities market Registering and regulating the working of collective investment schemes including mutual funds Promoting and regulating self-regulatory organizations Prohibiting fraudulent and unfair trade practices in the securities market

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Functions of SEBI contd ..



 

Promoting investors education and training of intermediaries in securities market Prohibiting insiders trading in securities Regulating substantial acquisition of shares and take-over of companies Calling for information, undertaking inspection, conducting enquiries and audits of the stock exchanges, intermediaries and self-regulatory organizations in the securities market

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1-75

Organization of SEBI
The management of SEBI vests in the board, which consists of the following members:  A Chairman  Two members from amongst the officials of Ministers of the Central Government dealing with Finance of law  One member from amongst the official of the Reserve Bank of India  Two other members, to be appointed by the Central Government

1-76

Organization of SEBI
Primary Mkt. dept.
Policy matters related to primary market, intermediaries and self regulatory organizations, redressal of investors grievances and guidance

Issue Mgt. & Intermediaries Dept. Departments Secondary Mkt. dept. Institutional Invt.
Registration, regulation and monitoring of the intermediaries and security of offer document. Policy matters related to major stock exchanges, price monitoring, prevention of insider trading and brokers registration.

Advisory Committees

Mutual Funds, FIIs etc

1-77

SEBI Regulates

SEBI regulates

Primary Market

Secondary Market

Mutual Funds

Foreign Institutional Investment

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SEBI & Primary Market

Measures undertaken by SEBI:    

Entry norms Promoters contribution Disclosure Allocation of shares Market intermediaries

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1-79

Contd ..
1. Entry norms
a)

b)

c)

d)

e)

Track record of dividend payment for minimum 3 yrs preceding the issue. Already listed companies when post-issue networth becomes more than 5 times the preissue networth For Manufacturing company not having such track record appraise project by a public financial institution or a scheduled commercial bank. For corporate body 5 public shareholders for every Rs.1 lakh of the net capital offer made to the public Banks 2 yrs of profitability for issues above par.

1-80

Contd .
2. Promoters contribution


Should not be less than 20% of the issued capital. The entire promoters contribution should be received before the public issue. SEBI announced that not more than 20% of the entire contribution brought in by promoters cumulatively in public and preferential issue would be locked in for 5 years .

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Contd .
3. Disclosure


Draft prospectus should be provide all the needed information to the investor regarding:
  

The present position of the company The future prospect and; The risk factor associated with the investment of the company.

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SEBI has advised all the listed companies to publish unaudited financial results on a quarterly basis.

1-82

Contd .
4. Allocation of shares


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To bring back the small investors to the primary market, the minimum application of shares has been reduced from 500 to 200 Reservation of minimum 50% of net offers to the small investors(<=1000 shares) is being made. Allotment of securities will be done within 30 days of the closure of the public issue. If not then the company would be required to pay an interest @15% per annum.

1-83

Contd . 5. Market intermediaries



Licensing of merchant bankers Licensing of underwriters, registrars, transfer agents, etc., Merchant bankers net worth Rs.5 crores From Dec 7, 1997 SEBI advised the merchant bankers to segregate the fund based activities from the fee based activities.

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1-84

SEBI & Secondary Market

Reforms in the secondary market:1. 2. 3. 4. 5. 6. 7.

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8.

Governing board Infrastructure Settlement & clearing Debt market Price stabilization Delisting Brokers Insider Trading

1-85

Contd .
1. Governing board  Brokers and non-brokers representation made 50:50  60% of brokers in arbitration, disciplinary & default committees  For trading members 40% representation 2. Infrastructure


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On-line screen terminals

based

trading

1-86

Contd .
3. Settlement & clearing
 

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Weekly settlements Auctions for non-delivered shares within 8 days of settlement Advice to set up clearing houses, clearing corporation or settlement guarantee fund for expediting the process of dematerialization of securities. Warehousing facilities permitted by SEBI.

1-87

Contd .
4. Debt market segment


Regulates thru SEBI (depository & participants) regulation Act 1996. Listing of debt instruments on the stock exchange even if the companys equity was not listed earlier. Dual rating for above Rs.500 million

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1-88

Contd .
5. Price stabilization  Division to monitor the unusual movements in prices.  Monitor prices of newly listed scrip from the first day of trading.  Circuit breaker system and other monitoring restrictions could be applied  Imposing of special margins of 25% on purchase in addition to regular margin.  Price filters: to prevent circular trading and price rigging  Price bands: intra-day---10% and 25% weekly 8 price cap.

1-89

Contd .
6. Delisting


On voluntary de-listing from regional stock exchanges buy offer to all share holders Promoters to buy or arrange buyers for the securities 3 yrs listing fees from companies and be kept in Escrow A/c with the stock exchange.

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1-90

SEBI and the FIIs

Union Govt. allowed Foreign Institutional Investors (FIIs) Non-Resident Indians (NRIs), and Persons of Indian Origin (PIOs) to enter into both Primary & Secondary market in India through the portfolio investment scheme (PIS), under Liberalized policy regime. Under this scheme, FIIs/NRIs can acquire shares/debentures of Indian companies through the stock exchanges in India. Implications Affects the SENSEX movements Determines the market indications, Guidelines announced in 1992. In 1993, 12 FIIs got registered At the end of 1996-97, 439 FIIs were registered At the end of June 2010, 1713 FIIs were registered. Can trade in securities of listed companies including OTCEI.

 

  

1-91

The ceiling for overall investment for FIIs

  

24% of the paid up capital of the Indian company 10% for NRIs/PIOs. 20% of the paid up capital in the case of public sector banks, including the State Bank of India.

Modifications in ceilings


The ceiling of 24 % for FII investment can be raised up to sectoral cap/statutory ceiling, subject to the approval of the board and the general body of the company passing a special resolution to that effect. The ceiling of 10 % for NRIs/PIOs can be raised to 24% subject to the approval of the general body of the company passing a resolution to that effect.

1-92

Contd .
The Reserve Bank of India


monitors the ceilings on FII/NRI/PIO investments in Indian companies on a daily basis. For effective monitoring of foreign investment ceiling limits, the Reserve Bank has fixed cut-off points that are two percentage points lower than the actual ceilings.

1-93

FIIs breakup in Indian Capital Market

1-94

SEBI guidelines for FIIs

According to the 1995 regulations, FIIs should hold certificate granted by SEBI to trade in Indian stock market. To grant the certificate the applicant should :
1.

2.

3.

4.

Have track record, professional & competence record, financial soundness, general reputation of fairness and integrity. Regulated by an appropriate foreign regulatory authority. Permission under the provisions of FERA Act 1973.(FEMA - 2006) The certificate is valid for a period of 5 years from the date of its grant.

1-95

Custodians
   

FIIs have to appoint an agency as a custodian to deal in the securities and reporting. Maintenance of accounts Submission of semi-annual reports (SEBI & RBI) Inspection of accounts

SEBI Guidelines
 

Foreign brokers can operate only on behalf of registered FIIs. Execution of orders for sale and purchase of securities are done by a member of an Indian stock exchange Time stipulation for transaction b/w custodian & member of ISE is 48 hrs.

1-96

Preferential Allotment
Regulation
   

Under mutual consent of the shareholders As per the ceilings Allotment on the highest price (26 weeks) Permitted up to 15% of the equity within the ceiling Holdings of a single FII increased from 5% to 10% of the equity of a company

1-97

Recent developments in FIIs



Exemption from attaching copy of RBI approval with each market lots. Allowed to invest in unlisted stocks of any company. Allowed to invest up to 100% in debt instruments. Mandatory to settle transactions thru dematerialized mode for FIIs having securities more than Rs.10 cr.

THE RISE OF SENSEX

vddf

98

1-99

Bombay Stock Exchange SENSEX



BSE Sensex or Bombay Stock Exchange Sensitivity Index is a value-weighted index composed of 30 stocks that started January 1, 1986. The Sensex is regarded as the pulse of the domestic stock markets in India. It consists of the 30 largest and most actively traded stocks, representative of various sectors, on the Bombay Stock Exchange. These companies account for around fifty per cent of the market capitalization of the BSE. The base value of the SENSEX is 100 on April 1, 1979, and the base year of BSE-SENSEX is 197879.

1-100

The Rise of Sensex



1000, July 25, 1990: On July 25, 1990, the Sensex touched the magical four-digit figure for the first time and closed at 1,001 in the wake of a good monsoon and excellent corporate results. 2000, January 15, 1992: On January 15, 1992, the Sensex crossed the 2,000-mark and closed at 2,020 followed by the liberal economic policy initiatives undertaken by the then finance minister and current Prime Minister Dr Manmohan Singh. 3000, February 29, 1992: On February 29, 1992, the Sensex surged past the 3000 mark in the wake of the market-friendly Budget announced by the then Finance Minister, Dr Manmohan Singh.

1-101

The Rise of Sensex contd .



4000, March 30, 1992: On March 30, 1992, the Sensex crossed the 4,000-mark and closed at 4,091 on the expectations of a liberal export-import policy. It was then that the Harshad Mehta scam hit the markets and Sensex witnessed unabated selling. 5000, October 8, 1999: On October 8, 1999, the Sensex crossed the 5,000-mark as the BJP-led coalition won the majority in the 13th Lok Sabha election. 6000, February 11, 2000: On February 11, 2000, the infotech boom helped the Sensex to cross the 6,000-mark and hit and all time high of 6,006.

1-102

The Rise of Sensex contd .



7000, June 20, 2005: On June 20, 2005, the news of the settlement between the Ambani brothers boosted investor sentiments. This helped the Sensex crossed 7,000 points for the first time. 8000, September 8, 2005: On September 8, 2005, the Bombay Stock Exchange's benchmark 30-share index -the Sensex -- crossed the 8000 level following brisk buying by foreign and domestic funds in early trading. 9000, November 28, 2005: The Sensex on November 28, 2005 crossed the magical figure of 9000 to touch 9000.32 points during mid-session at the Bombay Stock Exchange on the back of frantic buying spree by foreign institutional investors and well supported by local operators as well as retail investors.

1-103

The Rise of Sensex contd .



10,000, February 6, 2006: The Sensex on February 6, 2006 touched 10,003 points during mid-session. The Sensex finally closed above the 10K-mark on February 7, 2006. 11,000, March 21, 2006: The Sensex on March 21, 2006 crossed the magical figure of 11,000 and touched a life-time peak of 11,001 points during midsession at the Bombay Stock Exchange for the first time. However, it was on March 27, 2006 that the Sensex first closed at over 11,000 points. 12,000, April 20, 2006: The Sensex on April 20, 2006 crossed the 12,000-mark and closed at a peak of 12,040 points for the first time.

1-104

The Rise of Sensex contd .



13,000, October 30, 2006: The Sensex on October 30, 2006 crossed the magical figure of 13,000 and closed at 13,024.26 points, up 117.45 points or 0.9%. It took 135 days for the Sensex to move from 12,000 to 13,000 and 123 days to move from 12,500 to 13,000. 14,000, December 5, 2006: The Sensex on December 5, 2006 crossed the 14,000-mark to touch 14,028 points. It took 36 days for the Sensex to move from 13,000 to the 14,000 mark. 15,000, July 6, 2007: The Sensex on July 6, 2007 crossed the magical figure of 15,000 to touch 15,005 points in afternoon trade. It took seven months for the Sensex to move from 14,000 to 15,000 points.

1-105

The Rise of Sensex contd .



16,000, September 19, 2007: The Sensex scaled yet another milestone during early morning trade on September 19, 2007. Within minutes after trading began, the Sensex crossed 16,000, rising by 450 points from the previous close. The 30-share Bombay Stock Exchange's sensitive index took 53 days to reach 16,000 from 15,000. 17,000, September 26, 2007: The Sensex scaled yet another height during early morning trade on September 26, 2007. Within minutes after trading began, the Sensex crossed the 17,000-mark . Some profit taking towards the end, saw the index slip into red to 16,887 - down 187 points from the day's high. The Sensex ended with a gain of 22 points at 16,921.

1-106

The Rise of Sensex contd .



18,000, October 09, 2007: The BSE Sensex crossed the 18,000-mark on October 09, 2007. It took just 8 days to cross 18,000 points from the 17,000 mark. The index zoomed to a new all-time intra-day high of 18,327. It finally gained 789 points to close at an alltime high of 18,280. 19,000, October 15, 2007: The Sensex crossed the 19,000-mark backed by revival of funds-based buying in blue chip stocks in metal, capital goods and refinery sectors. The index gained the last 1,000 points in just four trading days and touched a fresh all-time intra-day high of 19,096, and finally ended with a smart gain of 640 points at 19,059.

1-107

The Rise of Sensex contd .



20,000, December 11, 2007: The Sensex actually crossed the 20,000-mark on October 29, 2007 during intra-day trading but closed at 19,977.67 points. However, it was on December 11, 2007 that it finally closed at a figure above 20,000 points on the back of aggressive buying by funds. The 30-share index spurted 360.21 points to fly-past the crucial level and closed at 20,290.89. 21,000, January 8, 2008: The Sensex crossed the 21,000-mark in intra-day trade on January 8, 2008, bringing cheer to the markets at the very beginning of the New Year. Scaling a new peak, the Sensex spurted 264.88 points to touch 21,077.53 points in the first five minutes of trade.