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Capital Market -Group Members

Shweta Iyer 28

Vedangi Bahrot 05

Vruddhi Mehta 53

Nibha Agarwal 02

Varun Nair 61

Nitin Parmar 74

Avani Gosalia 25
Types of Financial market in India
• Capital Market

• Money Market

• Derivatives market

• Foreign Exchange market

• Commodity Market

• Insurance Market

• Mutual Fund Market


What is Capital Market?

• A capital market is simply any market where a government or a


company can raise money (capital) to fund their operations and long
term investment. Selling bonds and selling stock are two ways to
generate capital, thus BOND MARKET and STOCK MARKET are
considered capital markets.

• Capital Market is characterized as the provider of long-term


financing. The instruments used for this long-term financing are
equity instruments, insurance instruments, derivative instruments
and bonds.

• Other examples of capital market instruments include equity, floating


rate bonds, convertible bonds, asset backed securities, mortgage
backed securities, and interest rate swaps.
Why Capital Markets Exist
• Capital markets facilitate the transfer of capital (i.e.
financial) assets from one owner to another.

• They provide liquidity.


– Liquidity refers to how easily an asset can be
transferred without loss of value.

• A side benefit of capital markets is that the transaction


price provides a measure of the value of the asset.
Indian Capital Market -
Historical perspective
• Stock Market was for a privileged few

• Lack of Transparency - High tones costs

• No use of Technology

• Outdated banking system

• Volumes - less than Rs. 300 cr per day


Indian Capital markets -
Chronology
• 1994-Equity Trading commences on NSE
• 1995-All Trading goes Electronic
• 1996- Depository comes in to existence
• 1999- FIIs Participation- Globalisation
• 2000- over 80% trades in Demat form
• 2003- T+2 settlements in all stocks
Factors contributing to growth of
Indian Capital Market

• Establishment of Development banks & Industrial


financial institution.
• Legislative measures
• Growing public confidence
• Increasing awareness of investment opportunities
• Growth of underwriting business
• Setting up of SEBI
• Mutual Funds
• Credit Rating Agencies
Capital Markets - Reforms
• Each scam has brought in reforms - 1992 / 2001

• Screen based Trading through NSE

• Capital adequacy norms stipulated

• Dematerialization of Shares - risks of fraudulent paper eliminated

• Entry of Foreign Investors

• Introduction of Derivative products - Index / Stock Futures &


Options

• Margin Lending
Capital Market v/s Money Market
Extends beyond one year Upto One year or less.

Term loans and financial leases, Federal agency securities,


commercial paper
corporate equities, and bonds.
Working Capital Requirement.
Fixed Capital Requirement.
Instruments have only Primary
Instruments have Primary as market
well as secondary market
No Formal place for
Formal place for transactions transactions
e.g.. Stock market
Indian Capital Market

Market Instruments Intermediaries Regulator

SEBI
•Brokers
•Investment Bankers
Primary Secondary •Stock Exchanges
•Underwriters

Equity Debt Players

CRA Corporate Intermediaries Individual Banks/FI FDI /FII


Functions Of SEBI
• Regulates Capital Market.

• Checks Trading of securities.

• Checks the malpractices in securities market.

• It enhances investor's knowledge on market by providing


education.

• It regulates the stockbrokers and sub-brokers.

• To promote Research and Investigation


Instruments in Secondary Market
• Debenture

• Equity

• Giltz securities

• Derivatives

• Hedge funds

• FCCB
What is a Share or a Stock?

• In financial markets, a share is a unit of account for various financial


instruments including stocks (ordinary or preferential).

• In simple Words, a share or stock is a document issued by a


company, which entitles its holder to be one of the owners of the
company. A share is issued by a company or can be purchased
from the stock market.

• The common feature of all these is equity participation & limited in


the case of preference shares .
IPO & It’s Important Terminology

• Investment Bankers & Underwriters

• Registrar

• Issue of Prospectus

• Price Band

• Allotment

• Listing
Book building process
• Appointment of book runner i.e. merchant banker
• Preparation and submission of draft documents to SEBI and
obtaining of an acknowledgement card.
• A specified price band (range) is to be determined by issuer and
book runner
• Different price levels are invited from syndicate members .Adv.
Should mention opening and closing dates for the bids
• Issuer arrives at a final cut-off rate & final allocation in
consultation with book runner and lead manager
• Issuer and book runner may impose restrictions on number of
shares that can be allotted to each client
• Final prospectus is filed with the (ROC) along with procurement
agreement
• Placement portion opens for subscription
• Placement portion closes a day before the opening of public
issue portion
The role of the stock
exchange

• Creates investment opportunities for small


investors

• Government raises capital for development


projects

• Barometer of the economy


Stock Exchanges in INDIA
• Mangalore Stock Exchange • Bombay Stock Exchange
• Hyderabad Stock Exchange
• Madhya Pradesh Stock
• Uttar Pradesh Stock
Exchange Exchange
• Coimbatore Stock Exchange • Vadodara Stock Exchange
• Cochin Stock Exchange • The Ahmedabad Stock
• Bangalore Stock Exchange Exchange
• Saurashtra Kutch Stock • Magadh Stock Exchange
Exchange
• Pune Stock Exchange • Gauhati Stock Exchange
• National Stock Exchange • Bhubaneswar Stock
• OTC Exchange of India Exchange
• Calcutta Stock Exchange • Jaipur Stock Exchange
• Inter-connected Stock
Exchange (NEW) • Delhi Stock Exchange Assoc
• Madras Stock Exchange • Ludhiana Stock Exchange
National Stock Exchange (NSE)
NIFTY50
• An Index representing top 50 companies of India

• Has about 3200 odd listed companies

• Ranks third in the world in terms of number of transactions

• It is also a fastest growing exchange with a recorded growth of


16.6%

• Has various other Index for sub-classification of stocks of other


companies.
Nifty 50
COMPANIES SECTOR WEIGHTAGE

ABB Ltd. ELECTRICAL EQUIPMENT 0.60%

ACC Ltd. CEMENT AND CEMENT PRODUCTS 0.64%

Ambuja Cements Ltd. CEMENT AND CEMENT PRODUCTS 0.63%

Axis Bank Ltd. BANKS 1.47%

Bharat Heavy Electricals Ltd. ELECTRICAL EQUIPMENT 2.86%

Bharat Petroleum Corporation Ltd. REFINERIES 0.51%

Bharti Airtel Ltd. TELECOMMUNICATION - SERVICES 4.11%

Cairn India Ltd. OIL EXPLORATION/PRODUCTION 0.89%

Cipla Ltd. PHARMACEUTICALS 1.00%

DLF Ltd. CONSTRUCTION 1.20%

GAIL (India) Ltd. GAS 1.18%

Grasim Industries Ltd. CEMENT AND CEMENT PRODUCTS 1.44%


COMPANIES SECTOR WEIGHTAGE
Hindalco Industries Ltd. ALUMINIUM 0.90%
Hindustan Unilever Ltd. DIVERSIFIED 2.13%
Housing Development FINANCE - HOUSING 4.87%
Finance Corporation Ltd.
I T C Ltd. CIGARETTES 4.64%
ICICI Bank Ltd. BANKS 6.55%
Idea Cellular Ltd. TELECOMMUNICATION - 1.00%
SERVICES
Infosys Technologies Ltd. COMPUTERS - SOFTWARE 7.99%
Jindal Steel & Power Ltd. STEEL AND STEEL PRODUCTS 0.61%
Larsen & Toubro Ltd. ENGINEERING 7.20%
Mahindra & Mahindra Ltd. AUTOMOBILES - 4 WHEELERS 1.34%
Maruti Suzuki India Ltd. AUTOMOBILES - 4 WHEELERS 1.49%
NTPC Ltd. POWER 1.44%
NALCO ALLUMINIUM 0.22%
Oil & Natural Gas OIL 3.13%
Corporation Ltd. EXPLORATION/PRODUCTION
HCL Technologies Ltd. COMPUTERS - SOFTWARE 0.50%
COMPANIES SECTOR WEIGHTAGE
HDFC Bank Ltd. BANKS 4.87%

Hero Honda Motors Ltd. AUTOMOBILES - 2 AND 3 1.06%


WHEELERS
Power Grid Corporation of India POWER 0.48%
Ltd.
Punjab National Bank BANKS 0.71%

Ranbaxy Laboratories Ltd. PHARMACEUTICALS 0.39%

Reliance Capital Ltd. FINANCE 0.78%

Reliance Communications Ltd. TELECOMMUNICATION - 1.38%


SERVICES
Reliance Industries Ltd. REFINERIES 11.18%

Reliance Infrastructure Ltd. POWER 1.26%

Reliance Power Ltd. POWER 0.46%

Siemens Ltd. ELECTRICAL EQUIPMENT 0.61%

State Bank of India BANKS 3.52%

Steel Authority of India Ltd. STEEL AND STEEL PRODUCTS 0.75%

Sterlite Industries (India) Ltd. METALS 1.69%


COMPANIES SECTOR

WEIGHTAGE

Tata Motors Ltd. AUTOMOBILES - 4 WHEELERS 0.91

Tata Power Co. Ltd. POWER 1.67

Tata Steel Ltd. STEEL AND STEEL PRODUCTS 1.82

Unitech Ltd. CONSTRUCTION 1.13

Sun Pharmaceutical Industries Ltd.PHARMACEUTICALS 0.70%

Suzlon Energy Ltd. ELECTRICAL EQUIPMENT 0.44%

Tata Communication TELECOMMUNICATION - 0.27%


SERVICES

Tata Consultancy Services Ltd. COMPUTERS - SOFTWARE 2.01%


Bombay Stock Exchange (BSE)
Sensex30
• It is an index of 30 stocks representing 12 major sectors

• BSE is the world's number 1 exchange in terms of the number of


listed companies and the world's 5th in transaction numbers

• Market capitalization as on December 31, 2007 stood at $1.79


trillion

• An investor can choose from more than 4,700 listed companies

• For easy reference, Shares are classified into A, B, S, T and Z


groups
Sensex 30
COMPANIES SECTOR WEIGHTAGE
ACC Ltd. Housing Related 0.71%
Bharat Heavy Electricals Ltd. Capital Goods 3.15%

Bharti Airtel Ltd. Telecom 4.76%

DLF Ltd. Housing Related 1.47%


Grasim Industries Ltd. Diversified 1.56%

HDFC Finance 5.25%


HDFC Bank Ltd. Finance 4.47%
Hero Honda Motors Ltd. Transport Equipments 1.36%

Hindalco Industries Ltd. Metal,Metal Products & Mining 1.23%

Hindustan Unilever Ltd. FMCG 2.30%


ICICI Bank Ltd. Finance 7.60%

Infosys Technologies Ltd. Information Technology 9.32%


ITC Ltd. FMCG 4.86%

Jaiprakash Associates Ltd. Housing Related 1.46%


COMPANIES SECTOR WEIGHTAGE
Larsen & Toubro Limited Capital Goods 7.07%
Mahindra & Mahindra Ltd. Transport Equipments 1.50%
Maruti Suzuki India Ltd. Transport Equipments 1.92%
NTPC Ltd. Power 2.08%
ONGC Ltd. Oil & Gas 4.02%
Reliance Communications Limited Telecom 1.79%
Reliance Industries Ltd. Oil & Gas 13.36%
Reliance Infrastructure Ltd. Power 1.47%
State Bank of India Finance 4.95%
Sterlite Industries (India) Ltd. Metal,Metal Products & Mining 2.31%
Sun Pharmaceutical Industries Ltd. Healthcare 0.81%

Tata Consultancy Services Limited Information Technology 2.31%

Tata Motors Ltd. Transport Equipments 1.20%


Tata Power Company Ltd. Power 1.76%
Tata Steel Ltd. Metal,Metal Products & Mining 2.60%
Wipro Ltd. Information Technology 1.35%
BSE- Sectoral Indices
• POWER AUTO

• IT OIL&GAS

• BANKEX CD

• FMCG

• PSU

• METAL

• REALTY

• CG
Cash Market v/s Future Market
• Risk Involved is less • High Risk Involved
• Has no Expiry • Has an definite Expiry
• Can buy any number of • Need to buy in fixed Lot sizes
Shares • Need to pay margin amount for
• Need to pay full amount of purchase
purchase • Can trade all Instruments of
• Can trade only in Equity financial market
shares • Option available here is less
• Can trade in more than 5000 than 500 shares
listed shares • Can buy or sell Index also
• Cannot buy or sell Index Eg-Nifty50 futures, Bankex
Eg-Reliance, Tata Steel, Bharti futures, Reliance futures
Airtel, etc
Basic Terminologies Before
Trading
• Capital
• Trading Account
• Depository Participant
• Broker & Sub-Broker
• Brokerage
• Script Code
• Script Name
• Intra-day & Delivery
• Bid Quantity & Bid Price
• Ask Quantity & Ask Price
• Block Deal
• Short Trade
• ADR & GDR
• Open, High, Low & Close Price
• Last Traded Price & Quantity
• Stop Loss
• Hedge Funds
• P/E Ratio
• E.P.S.
• Top Line
• Bottom Line
• 52-week High/Low
• Circuit Limit
• Nifty Premium & Discount
• Futures Contract
• Options Contract
How to Start Trading?

REGISTER DEPOSIT CAPITAL

BUY SHARES CALL BROKER

SELL SHARES PROFIT or LOSS


Why share prices fluctuate?
Demand & Supply:
• Speculation or Insider Trading

• Results

• FDI

• Political Interference

• Change in Policy

• Change in Management
Derivative Contract
• A derivative is a financial instrument that is derived from some
other asset, index, event, value or condition.

• Derivative traders enter into an agreement to exchange cash or


assets over time based on the underlying asset.

• Derivatives are often leveraged, such that a small movement in the


underlying value can cause a large difference in the value of the
derivative.

• Derivatives can be used by investors to speculate and to make a


profit if the value of the underlying moves the way they expect.

• Alternatively, traders can use derivatives to hedge or mitigate risk in


the underlying, by entering into a derivative contract

Eg- Future Contract & Option Contract


Future Contract – How is it Traded
• The contracts are traded on a futures exchange
• Futures contracts are not "direct" securities like stocks or bonds but
a type of derivative contract
• The price is determined by the instantaneous equilibrium between
the forces of supply and demand among competing buy and sell
orders on the exchange at the time of the purchase or sale of the
contract.
• The future date is called the delivery date or final settlement date
• Futures traders are traditionally
a) Hedgers
b) Speculators
• The first futures exchange market was the Dōjima Rice Exchange in
Japan in the 1730’s
Symbol Market lot Total Margin % Total Margin Per Lot Closing Price

ABAN 50 36.22 13359.25 737.67


TATASTEEL 382 35.77 31171.42 228.13
TATAMOTORS 425 39.14 27969.25 168.14
SUNPHARMA 225 21.58 51609.63 1062.91
SBIN 132 28.05 48897.26 1320.62
RELCAPITAL 138 38.09 29600.09 563.12
RELIANCE 75 30.29 28633.5 1260.42
RANBAXY 800 28.42 57172 251.46
RCOM 350 38.89 33535.25 246.37
NFTYMCAP50 75 15.09 15455.8 1365.65
NIFTY 50 15.73 23950.55 3045.21
LT 100 29.61 24373.5 823.15
BANKNIFTY 25 17.11 21982.15 5139.02
AXISBANK 225 30.45 35592.75 519.51
FINANTECH 150 33.54 26187 520.51
GTOFFSHORE 250 59.63 37341.25 250.49
UTVSOF 300 70.71 57757.5 272.27
Option Contract – How is it Traded
• An option is a contract between a buyer and a seller that gives the
buyer the right but not the obligation to buy or to sell a particular
asset
• In return, the seller collects the premium from the buyer
• A call option gives the buyer the right to buy the underlying asset;
a put option gives the buyer of the option the right to sell the
underlying asset
• If the buyer chooses to exercise this right, the seller is obliged to sell
or buy the asset at the agreed price
• The buyer may choose not to exercise the right and let it expire
• The underlying asset can be a piece of property, or shares of stock
or some other security, such as, among others, a futures contract
Volatility Index (VIX)
• Volatility Index is a measure of market’s expectation of volatility over
the near term.
• Is described as the “rate and magnitude of changes in prices”
• In finance often referred to as risk.
• India VIX is a volatility index based on the Nifty 50 Index Option
prices.
• India VIX is calculated based on the bid-offer prices of the near and
mid month Nifty 50 Index Options.
• India VIX is a premier barometer of investor consensus of market
volatility expressed through option pricing.
• The Chicago Board of Options Exchange (CBOE) was the first to
introduce the volatility index for the US markets in 1993.
VIX for week ended 25/09/09

Date Open High Low Close Prev. Change % Change


Close

22/9/09 25.86 27.86 25.86 26.80 25.86 0.94 3.63

23/9/09 26.80 27.50 25.88 26.51 26.8 -0.29 -1.08

24/9/09 26.51 28.76 24.29 24.36 26.51 -2.15 -8.11

25/9/09 26.43 26.43 24.43 26.11 24.36 1.75 7.18


Effects of Inflation on Indian Stock
Market
• RBI Increasing Rates

• Lack of Liquidity

• Poor results of Corporate

• Real Estate Leading the down-fall

• Banking sector the under-performer


Financial Aspects of Capital Market
• Average Daily Turnover of Rs. 60,000 Crores.

• Contribution of Cash Market = 20% of Total Turnover.

• 80% comes from Derivatives side.

• About 30% of Total Turnover comes from FII’s.

• Next 50% comes from FI’s, Insurance Companies, A.M.C.’s, Mutual


Funds and other Institutional Investors.
Sector Wise FDI Limits in India

• Hotel & Tourism sector – 100%

• Non-Banking Financial Companies (NBFC) – 49%

• Insurance Sector – 26%

• Telecommunication – 49%

• Trading – 51% to 100%

• Power – 100%

• Drugs & Pharmaceuticals – 100%

• Roads, Highways, Ports and Harbors – 100%


Role Of Credit Rating Agencies
• Their main function is to grade the different sector and companies in
terms of performance and offer solutions for up gradation.
• The credit rating agencies in India offer varied services like mutual
consulting services, which comprises of operation up gradation, risk
management.
• The have special sections to carry on research and development
work of the industries.
• CRISIL & ICRA the two top tier Rating Agencies in India
• Helps the Stock Exchanges in classifying the stocks in various
groups. Eg- A, B, T, Z, etc.
• Ratings use by investment banks and broker-dealers, government
regulators, etc
Impact of various events on capital
market
• October 30, 2006 The Sensex crossed the magical figure of 13,000 and
closed at 13,024.26 points. It took 135 days
• December 5, 2006 The Sensex crossed the 14,000-mark to touch 14,028
points. It took 36 days
• July 6, 2007 The Sensex crossed the magical figure of 15,000 to touch in
afternoon trade. It took seven months for the Sensex to move from 14,000
to 15,000 points
• September 19, 2007 The Sensex scaled yet another milestone during early
morning trade, rising by 450 points from the previous close it took 53 days
to reach 16,000 from 15,000. Nifty also touched a new high at 4659, up 113
points.
• September 26, 2007 The Sensex scaled yet another height during early
morning trade crossing 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.
• October 9, 2007 The BSE Sensex crossed the it took just 8 days to
cross 18,000 points. The index zoomed to a new all-time intra-day
high of 18,327.
• October 15, 2007 The Sensex crossed the 19,000-mark, the index
gained the last 1,000 points in just four trading days. The Nifty
closed 242 points to close at 5,670.
• October 29, 2007 The Sensex crossed the 20,000. The index took
only 10 trading days to gain 1,000 points after the index crossed the
19,000-mark on October 15. The NSE Nifty rose to a record high
5,922.50 points
• January 8, 2008 The sensex peaks. It crossed the 21,000 mark in
intra-day trading after 49 trading sessions
• January 21 & 22, 2008 The sensex Losses nearly 3000 points to
end above 16000 odd. Touching 15500 in intra-day trade
• June 13, 2008 The sensex closed below 15,200 mark, Indian
market suffer with major downfall from January 21,2008
• June 25, 2008 The sensex touched an intra day low of 13,731
during the early trades, then pulled back and ended up at 14,220.
• July 2, 2008 The sensex hit an intra day low of 12,822.70 on July 2,
2008. This is the lowest that it has ever been in the past year.
• Oct 6, 2008 The sensex closed at 11801.70 hitting the lowest in the
past 2 years
• Oct 10, 2008 The Sensex today closed at 10527,800.51 points
down from the previous day having seen an intraday fall of as large
as 1063 points
• May 18, 2009 After the result of 15th Indian general election Sensex
gained 2110.79 points from the previous close of 12173.42 these
creates a new history in Indian Market
Impact of Slowdown on markets
• Indian IT sector

• Power

• Banking

• Real-estate

• Construction
Sensex from 2008-2009
State of Capital Market
• Foreign Capital coming back to India

• It Sector Leading the way

• Crude helping market’s up-move

• Real-Estate still under-pressure

• Banks full of Liquidity

• Investor confidence helping Stock Market


Basic Trading Strategies

• Develop a winning strategy and trade often. A small daily profit can
provide a large annual return

• Trade only stocks with the highest growth probabilities

• Be sure that expected return is larger than the transaction cost

• Avoid risk as much as possible

• Diversification is the only way to survive in the market


Capital of Rs 10k

Retain 20% for


Invest 2k in contingencies
one sector

Invest 3k in Mutual
2k in another Fund or FD’s
sector
Dow Theory
• The market has three movements

• Market Trends have three phases

• The stock market discounts all news

• Stock market averages must confirm each other

• Trends are confirmed by volume

• Trends exist until definitive signals prove that they have ended
Thank You