Beruflich Dokumente
Kultur Dokumente
Bachelor of Commerce
Financial Markets
Semester V
(2014-15)
Submitted by
Yash Hiranandani
Roll No. 13
Bachelor of Commerce
Financial Markets
In Partial Fulfillment of the requirements
Semester V
Roll No - 13
H.R. COLLEGE OF COMMERCE & ECONOMICS
123, D.W. Road, Churchgate, Mumbai 400020
CERTIFICATE
Principal
Project Guide
Internal Examiner
External Examiner
DECLARATION
Roll No. 13
INDEX
Sr. No
Topic
Page No
Introduction
Development of
26
Indian Financial
Market
4
Problems and
73
Solutions
Executive Summary
Financial Markets are the heart and soul of any nations economy. The
economic health of a country is dependant on the performance of these
financial markets such as Equities Markets, Commodities Markets, Forex
Markets etc. These markets have existed since as far as back as the
1800s. Investors trade on these markets and the markets are influenced
by these activities. In this project I have focused on the progress these
markets have made over the years, especially in recent times. I have
focused on mainly on the following markets:
Commodity Markets
Money Markets
Insurance Markets
This project also compares these markets in the past and focuses on the
changes made over the years in these markets and how these improvements
have bettered the numbers and efficiency of the financial sector in India.
Introduction
7
Indian Financial Market helps in promoting the savings of the economy helping to adopt an effective channel to transmit various financial
policies. The Indian financial sector is well-developed, competitive,
efficient and integrated to face all shocks. In the India financial market
there are various types of financial products whose prices are determined
by the numerous buyers and sellers in the market. The other
determinant factor of the prices of the financial products is the market
forces of demand and supply. The various other types of Indian markets
help in the functioning of the wide India financial sector.
What does the India Financial market comprise of? It talks about the
primary market, FDIs, alternative investment options, banking and
insurance and the pension sectors, asset management segment as well.
With all these elements in the India Financial market, it happens to be
one of the oldest across the globe and is definitely the fastest growing
and best among all the financial markets of the emerging economies. The
history of Indian capital markets spans back 200 years, around the end
of the 18th century. It was at this time that India was under the rule of
the East India Company. The capital market of India initially developed
around Mumbai; with around 200 to 250 securities brokers participating
in active trade during the second half of the 19th century.
exchanges, there was the Madras, Kanpur, Delhi, Bangalore and Pune
exchanges as well. Today there are 23 regional securities exchanges in
India.
The Indian Financial Markets can be divided into the CapitalMarket and
the Money Market as shown in the diagram below
A money market is a market for borrowing and lending of shortterm funds. It deals in funds and financial instruments having a maturity
period of one day to one year. It is a mechanism through which shortterm funds are loaned or borrowed and through which a large part of
financial transactions of a particular country or of the world are cleared.
It is different from stock market. It is not a single market but a
collection of markets for several instruments like call money market,
Commercial bill market etc. The Reserve Bank of India is the most
important constituent of Indian money market. Thus RBI describes
money market as the centre for dealings, mainly of a short-term
character, in monetary assets, it meets the short-term requirements of
borrowers and provides liquidity or cash to lenders.
PLAYERS OF MONEY MARKET :In money market transactions of large amount and high volume take
place. It is dominated by small number of large players. In money
market the players are :-Government, RBI, DFHI (Discount and finance
House of India) Banks, Mutual Funds, Corporate Investors, Provident
Funds, PSUs (Public Sector Undertakings), NBFCs (Non-Banking
Finance Companies) etc.
The role and level of participation by each type of player differs from
that of others.
I.
Organised Sector Of Money Market :Organised Money Market is not a single market, it consist of number
1)
Call And Notice Money Market :The market for extremely short-period is referred as call money
basis. The participants are mostly banks. Therefore it is also called InterBank Money Market. Under notice money market funds are transacted
for 2 days and 14 days period. The lender issues a notice to the borrower
2 to 3 days before the funds are to be paid. On receipt of notice, borrower
have to repay the funds.
In this market the rate at which funds are borrowed and lent is called
the call money rate. The call money rate is determined by demand and
supply of short term funds. In call money market the main participants
are commercial banks, co-operative banks and primary dealers. They
participate as borrowers and lenders. Discount and Finance House of
India (DFHI), Non-banking financial institutions like LIC, GIC, UTI,
NABARD etc. are allowed to participate in call money market as lenders.
Call money markets are located in big commercial centres like
Mumbai, Kolkata, Chennai, Delhi etc. Call money market is the indicator
of liquidity position of money market. RBI intervenes in call money
market as there is close link between the call money market and other
segments of money market.
2)
Treasury Bill Market (T - Bills) :This market deals in Treasury Bills of short term duration issued by
Commercial Bills :Commercial bills are short term, negotiable and self liquidating
Certificate Of Deposits (CDs) :CDs are issued by Commercial banks and development financial
They are freely transferable but only after the lock-in-period of 45 days
after the date of issue.
In India the size of CDs market is quite small.
In 1992, RBI allowed four financial institutions ICICI, IDBI, IFCI
and IRBI to issue CDs with a maturity period of. one year to three years.
5)
Money Market Mutual Funds (MMMFs) :A Scheme of MMMFs was introduced by RBI in 1992. The goal was
14
7)
The Repo Market ;Repo was introduced in December 1992. Repo is a repurchase
sector banks and all India financial institutions which have contributed
to its paid up capital.It is playing an important role in developing an
active secondary market in Money Market Instruments. In February
1996, it was accredited as a Primary Dealer (PD). The DFHI deals in
treasury bills, commercial bills, CDs, CPs, short term deposits, call
money market and government securities.
15
Unorganised Sector Of Money Market :The economy on one hand performs through organised sector and on
other hand in rural areas there is continuance of unorganised, informal
and indigenous sector. The unorganised money market mostly finances
short-term financial needs of farmers and small businessmen. The main
constituents of unorganised money market are:1)
deposits and give loans and thereby operate as banks. IBs accept
deposits as well as lend money. They mostly operate in urban areas,
especially in western and southern regions of the country. The volume of
their credit operations is however not known. Further their lending
operations are completely unsupervised and unregulated. Over the years,
the significance of IBs has declined due to growing organised banking
sector.
2)
lending in India is very popular both in urban and rural areas. Interest
rates are generally high. Large amount of loans are given for
unproductive purposes. The operations of money lenders are prompt,
informal and flexible. The borrowers are mostly poor farmers, artisans,
petty traders and manual workers. Over the years the role of money
lenders has declined due to the growing importance of organised
banking sector.
16
3)
1.
Chit Funds
Chit funds are savings institutions. It has regular members who
2.
Nidhis :Nidhis operate as a kind of mutual benefit for their members only.
3.
Loan companies are found in all parts of the country. Their total
capital consists of borrowings, deposits and owned funds. They give
loans to retailers, wholesalers, artisans and self employed persons. They
offer a high rate of interest along with other incentives to attract
deposits. They charge high rate of interest varying from 36% to 48% p.a.
17
4.
Finance Brokers
They are found in all major urban markets specially in cloth, grain
and commodity markets. They act as middlemen between lenders and
borrowers. They charge commission for their services.
18
2. Lack Of Co-ordination And Integration :It is difficult for RBI to integrate the organised and unorganised
sector of money market. RBT is fully effective in organised sector but
unorganised market is out of RBIs control. Thus there is lack of
integration between various sub-markets as well as various institutions
and agencies. There is less co-ordination between co-operative and
commercial banks as well as State and Foreign banks. The indigenous
bankers have their own ways of doing business.
19
3. Diversity In Interest Rates :There are different rates of interest existing in different segments of
money market. In rural unorganised sectors the rate of interest are high
and they differ with the purpose and borrower. There are differences in
the interest rates within the organised sector also. Although wide
differences have been narrowed down, yet the existing differences do
hamper the efficiency of money market.
4. Seasonality Of Money Market :Indian agriculture is busy during the period November to June
resulting in heavy demand for funds. During this period money market
suffers from Monetary Shortage resulting in high rate of interest. During
slack season rate of interest falls &s there are plenty offunds available.
RBI has taken steps to reduce the seasonal fluctuations, but still the
variations exist.
5. Shortage Of Funds :In Indian Money Market demand for funds exceeds the supply.
There is shortage of funds in Indian Money Market an account of various
factors like inadequate banking facilities, low savings, lack of banking
habits, existence of parallel economy etc. There is also vast amount of
black money in the country which have caused shortage of funds.
20
6. Absence Of Organised Bill Market :A bill market refers to a mechanism where bills of exchange are
purchased and discounted by banks in India. A bill market provides
short term funds to businessmen. The bill market in India is not popular
due to overdependence of cash transactions, high discounting rates,
problem of dishonour of bills etc.
7. Inadequate Banking Facilities :Though the commercial banks, have been opened on a large scale,
yet banking facilities are inadequate in our country. The rural areas are
not covered due to poverty. Their savings are very small and mobilisation
of small savings is difficult. The involvement of banking system in
different scams and the failure of RBI to prevent these abuses of banking
system shows that Indian banking system is not yet a well organised
sector.
21
CAPITAL MARKET
Capital market is a market where buyers and sellers engage in trade of
financial securities like bonds, stocks, etc. The buying/selling is
undertaken by participants such as individuals and institutions.
Capital market in any country consists of equity and the debt markets.
Within the debt market there are govt securities and the corporate bond
market. For developing countries, a liquid corporate bond market can
play a critical role in supporting economic development as
It supplements the banking system to meet corporate sector
requirements for long-term capital investment and asset creation.
It provides a stable source of finance when the equity market is volatile.
22
23
25
As all the Financial Markets in India together form the Indian Financial
Markets, all the Financial Markets of Asia together form the Asian
Financial Markets; likewise all the Financial Markets of all the countries
of the world together form the Global Financial Markets. Financial
Markets deal with trading (buying and selling) of financial securities
(stocks and bonds), commodities (valuable metals or food grains), and
other exchangeable and valuable items at minimum transaction costs
and market efficient prices. Financial Markets can be domestic or
international. The Global Financial Markets work as a significant
instrument for improved liquidity.
Financial Markets can be categorized into six types:
Commodity Markets
Money Markets
26
Insurance Markets
27
Money market
major weaknesses came to the fore. First was the lack of a single policy
rate, as the operating policy rate alternated between repo during deficit
liquidity situation and reverse repo rate during surplus liquidity
condition. Second was the lack of a firm corridor, as the effective
overnight interest rates dipped (rose) below (above) the reverse repo
(repo) rate in extreme surplus (deficit) conditions. Recognising these
shortcomings, a new operating procedure was put in place in May 2011.
These are the key features of the new operating procedure. First, the
weighted average overnight call money rate was explicitly recognised as
the operating target of monetary policy. Second, the repo rate was made
the only one independently varying policy rate. Third, a new Marginal
Standing Facility (MSF) was instituted under which scheduled
commercial banks (SCBs) could borrow overnight at 100 basis points
above the repo rate up to one per cent of their respective net demand and
time liabilities (NDTL). This limit was subsequently raised to two per
cent of NDTL and in addition, SCBs were allowed to borrow funds under
MSF on overnight basis against their excess SLR holdings as well.
Moreover, the Bank Rate being the discount rate was aligned to the MSF
rate. Fourth, the revised corridor was defined with a fixed width of 200
basis points. The repo rate was placed in the middle of the corridor, with
the reverse repo rate at 100 basis points below it and the MSF rate as
well as the Bank Rate at 100 basis points above it. Thus, under the new
operating procedure, all the three other rates announced by the Reserve
Bank, i.e., reverse repo rate, MSF rate and the Bank Rate, are linked to
the single policy repo rate. The new operating procedure was expected to
improve the implementation and transmission of monetary policy for the
following reasons. First, explicit announcement of an operating target
makes market participants clear about the desired policy impact. Second,
a single policy rate removes the confusion arising out of policy rate
31
alternating between the repo and the reverse repo rates, and makes
signalling of monetary policy stance more accurate. Third, MSF provides
a safety valve against unanticipated liquidity shocks. Fourth, a fixed
interest rate corridor set by MSF rate and reverse repo rate, reduces
uncertainty and communication difficulties and helps keep the overnight
average call money rate close to the repo rate.
Since May 2011, the liquidity conditions can be broadly divided into
three distinct phases.
After generally remaining within the Reserve Banks comfort zone during
the first phase during MayOctober 2011, the liquidity deficit crossed the
one per cent of NDTL level during November 2011 to June 2012. This
large liquidity deficit was mainly caused by forex intervention and
increased divergence between credit and deposit growth. The deficit
conditions were further aggravated by frictional factors like the build-up
of government cash balances with the Reserve Bank that persisted longer
than anticipated and the increase in currency in circulation. Accordingly,
the Reserve Bank had to actively manage liquidity through injection of
liquidity by way of open market operations (OMOs) and cut in cash
reserve ratio (CRR) of banks. This was supported by decline in currency
in circulation and a reduction in government cash balances with the
Reserve Bank. As a result, there was a significant easing of liquidity
conditions since July 2012 with the extent of the deficit broadly
returning to the Reserve Banks comfort level of one per cent of NDTL.
Second, the repo rate and weighted call rate are far more closely aligned
under the new operating procedure than earlier; implying improved
32
Third, the call money rate in turn is observed to be better aligned with
other money market interest rates after the implementation of new
operating procedure than before
As a result of various reform measures, the money market in India has
undergone significant transformation in terms of volume, number of
instruments and participants and development of risk management
practices. In line with the shifts in policy emphasis, various segments of
the money market have acquired greater depth and liquidity. The price
discovery process has also improved. The call money market has been
transformed into a pure inter-bank market, while other money market
instruments such as market repo and CBLO have developed to provide
avenues to non-banks for managing their short-term liquidity
mismatches. The money market has also become more efficient as is
reflected in the narrowing of the bid-ask spread in overnight rates. The
abolition of ad hoc Treasury Bills and introduction of Treasury Bills
auction have led to the emergence of a risk free rate, which acts as a
benchmark for the pricing of other money market instruments.
In the development of various constituents of the money market, the
most significant aspect was the growth of the collateralised market vis-vis the uncollateralised market. Over the last decade, while the daily
turnover in the call money market either stagnated or declined, that of
the collateralised segment, market repo plus CBLO, increased manifold.
Since 200708, both the CP and CD volumes have also increased very
significantly. Furthermore, issuance of 91-treasury bills has also
33
increased sharply. The overall money market now is much larger relative
to GDP than a decade ago.
34
One of the key issues in the development of the market for a better price
discovery is liquidity of securities. It was observed that, of the universe of
a large number of outstanding securities, only a few securities are
actively traded in the secondary market. The Reserve Bank has been
following a policy of passive consolidation through re-issuance of
existing securities with a view to enhancing liquidity in the secondary
segment of the government securities market. The share of re-issuances
in the total securities issued was 97.7 per cent during 2005-06. Active
consolidation of government securities has also been attempted under
the debt buyback scheme introduced in July 2003, which is expected to
be more actively pursued now. As a result of the developmental
measures undertaken, the volume of transactions has increased manifold
over the past decade.
To keep the markets liquid and active even during the bearish times, and
more importantly, to give the participants a tool to better manage their
interest rate risk, intra-day short selling in government securities was
permitted among eligible participants, viz., scheduled commercial banks
(SCBs) and primary dealers (PDs) in February 2006. Subsequently, the
short positions were permitted to be carried beyond intra-day for a
period of five trading days, effective January 31, 2007. To further
improve the liquidity in the government securities market, guidelines for
trading in when issued WI market were issued by the Reserve Bank in
May, 2006. Trading in WI segment, which commenced in August
2006, was initially permitted in reissued securities. It takes place from
the date of announcement of auction till one day prior to allotment of
auctioned securities. The revised guidelines extending WI trading to
new issuances of Central Government securities on a selective basis were
issued in November 2006.
38
Over the past few years, some significant reforms have been undertaken
to develop the bond market and particularly the corporate bond market.
The listing requirements for corporate debt have been simplified. Issuers
now need to obtain rating from only one credit rating agency unlike
earlier. Further, they are permitted to structure debt instruments, and
are allowed to do a public issue of below investment grade bonds. One
more welcome change was, the exemption of TDS on corporate debt
instruments issued in demat form and on recognized stock
39
40
41
Traditionally Indian forex market has been a highly regulated one. Till
about 1992-93, government exercised absolute control on the exchange
rate, export-import policy, FDI ( Foreign Direct Investment) policy. The
Foreign Exchange Regulation Act(FERA)enacted in 1973, strictly
controlled any activities in any remote way related to foreign exchange.
FERA was introduced during 1973, when foreign exchange was a scarce
commodity. Post independence, union governments socialistic way of
managing business and the license raj made the Indian companies
noncompetitive in the international market, leading to decline in export.
Simultaneously India import bill because of capital goods, crude oil
&petrol products increased the forex outgo leading to sever scarcity of
foreign exchange. FERA was enacted so that all forex earnings by
companies and residents have to reported and surrendered (immediately
after receiving) to RBI (Reserve Bank of India) at a rate which was
mandated by RBI. FERA was given the real power by making any
violation of FERA was a criminal offense liable to imprisonment. It a
professed a policy of a person is guilty of forex violations unless he
proves that he has not violated any norms of FERA. To sum up, FERA
prescribed a policy nothing (forex transactions) is permitted unless
specifically mentioned in the act. Post liberalization, the Government of
India, felt the necessity to liberalize the foreign exchange policy. Hence,
Foreign Exchange Management Act (FEMA) 2000 was introduced.
FEMA expanded the list of activities in which a person/company can
undertake forex transactions. Through FEMA, government liberalized
the export-import policy, limits of FDI (Foreign Direct Investment) & FII
(Foreign Institutional Investors) investments and repatriations, crossborder M&A and fund raising activities. Prior to 1992, Government of
India strictly controlled the exchange rate. After 1992, Government of
India slowly started relaxing the control and exchange rate became more
42
market has almost converged with that of other major currencies in the
international market. On some occasions, in fact, the bid-ask spread of
Rupee/US$ market was lower than that of some major currencies
The EMEs experience, in general, in the 1990s has highlighted the
growing importance of capital flows in determining the exchange rate
movements as against trade flows and economic growth in the 1980s and
before. In the case of most developing countries, which specialise in
labour-intensive and low and intermediate technology products, profit
margins in the highly competitive markets are very thin and vulnerable
to pricing power by large retail chains. Consequently, exchange rate
volatility has significant employment, output and distributional
consequences. Foreign exchange market conditions have remained
orderly in the post-1993 period, barring occasional periods of volatility.
The Indian approach to exchange rate management has been to avoid
excessive volatility. Intervention by the Reserve Bank in the foreign
exchange market, however, has been relatively small compared to total
turnover in the market.
As a result of various measures, the Indian foreign exchange market has
evolved into a relatively mature market over a period of time with
increase in depth and liquidity. The turnover in the market has increased
over the years. With the gradual opening up of the capital account, the
forward premia are getting increasingly aligned with the interest rate
differential. There is also evidence of enhanced efficiency in the foreign
exchange market as is reflected in low bid-ask spreads. The gradual
development of the foreign exchange market has helped in smooth
implementation of current account convertibility and the phased and
gradual opening of the capital account. The availability of derivatives is
also helping domestic entities and foreign investors in their risk
44
1947 to1977: During 1947 to 1971, India exchange rate system followed
the par value system. RBI fixed rupees external par value at 4.15 grains
of fine gold. 15.432grains of gold is equivalent to 1 gram of gold. RBI
allowed the par value to fluctuate within the permitted margin of 1
percent. With the breakdown of the Bretton Woods System in 1971 and
the floatation of major currencies, the rupee was linked with PoundSterling. Since Pound-Sterling was fixed in terms of US dollar under the
Smithsonian Agreement of 1971, the rupee also remained stable against
dollar.
1978-1992: During this period, exchange rate of the rupee was officially
determined in terms of a weighted basket of currencies of Indias major
trading partners. During this period, RBI set the rate by daily
announcing the buying and selling rates to authorized dealers. In other
words, RBI instructed authorized dealers to buy and sell foreign currency
at the rate given by the RBI on daily basis. Hence exchange rate
fluctuated but within a certain range. RBI managed the exchange rate in
such a manner so that it primarily facilitates imports to India. As
mentioned in Section 5.1, the FERA Act was part of the exchange rate
regulation practices followed by RBI. Joint Initiative IITs and IISc
Funded by MHRD - 4 -NPTEL International Finance Vinod Gupta
School of Managment , IIT. Kharagpur Indias perennial trade deficit
widened during this period. By the beginning of 1991, Indian foreign
45
exchange reserve had dwindled down to such a level that it could barely
be sufficient for three-weeks worth of imports. During June 1991, India
airlifted 67 tonnes of gold, pledged these with Union Bank of Switzerland
and Bank of England, and raised US$ 605 millions to shore up its
precarious forex reserve. At the height of the crisis, between 2nd and 4th
June 1991, rupee was officially devalued by 19.5% from 20.5 to 24.5 to 1
US$. This crisis paved the path to the famed liberalization program of
government of India to make rules and regulations pertaining to foreign
trade, investment, public finance and exchange rate encompassing a
broad gamut of economic activities more market oriented.
1992 onwards: 1992 marked a watershed in Indias economic condition.
During this period, it was felt that India needs to have an integrated
policy combining various aspects of trade, industry, foreign investment,
exchange rate, public finance and the financial sector to create a marketoriented environment. Many policy changes were brought in covering
different aspects of import-export, FDI, Foreign Portfolio Investment
etc. One important policy changes pertinent to Indias forex exchange
system was brought in -- rupees was made convertible in current
account. This paved to the path of foreign exchange payments/receipts
to be converted at market-determined exchange rate. However, it is
worthwhile to mention here that changes brought in by government of
India to make the exchange rate market oriented have not happened in
one big bang. This process has been gradual.
46
Commodity Market
47
49
51
COMMODITIES TRADED
World-over one will find that a market exits for almost all the
commodities known to us. These commodities can be broadly classified
into the following:
BULLION
FIBER
ENERGY
SPICES
PLANTATIONS
52
PULSES
CEREALS
Maize
Guargum, Guar Seed, Gurchaku, Mentha
OTHERS
4.
highly price elastic. The manufacturers have to ensure that the prices
should be stable in order to protect their market share with the free entry
of imports. Futures contracts will enable predictability in domestic
prices. The manufacturers can, as a result, smooth out the influence of
changes in their input prices very easily. With no futures market, the
manufacturer can be caught between severe short-term price movements
of oils and necessity to maintain price stability, which could only be
possible through sufficient financial reserves that could otherwise be
utilized for making other profitable investments.
5.
56
Derivatives Market
futures contract of course, this allows them the benefit of holding the
asset.
7. Price stabilization function : Derivative market helps to keep a
stabilizing influences on spot prices by reducing the short term
fluctuations. In other words, derivatives reduces both peak and depths
and lends to price stabilization effect in the cash market for underlying
asset.
8. Gearing of value : Special care and attention about financial
derivatives provide leverage (or gearing), such that a small movement in
the underlying value can cause a large difference in the value of the
derivative.
9. Develop the complete markets : It is observed that derivative trading
develop the market towards complete markets complete market
concept refers to that situation where no particular investors be better of
than others, or patterns of returns of all additional securities are
spanned by the already existing securities in it, or there is no further
scope of additional security.
10. Encourage competition : The derivatives trading encourage the
competitive trading in the market, different risk taking preference at
market operators like speculators, hedgers, traders, arbitrageurs etc.
resulting in increase in trading volume in the country. They also attract
young investors, professionals and other experts who will act as catalysts
to the growth of financial market.
11. Liquidity and reduce transaction cost : As we see that in derivatives
trading no immediate full amount of the transaction is required since
most of them are based on margin trading. As a result, large number of
traders, speculators, arbitrageurs operates in such markets. So,
61
The NSE and BSE are two major Indian markets have shown a
remarkable growth both in terms of volumes and numbers of traded
contracts. Introduction of derivatives trading in 2000, in Indian markets
was the starting of equity derivative market which has registered on
explosive growth and is expected to continue the same in the years to
come. NSE alone accounts 99% of the derivatives trading in Indian
markets. Introduction of derivatives has been well received by stock
market players. Derivatives trading gained popularity after its
introduction in very short time.If we compare the business growth of
NSE and BSE in terms of number of contracts traded and volumes in all
product categories with the help of table no.4, table no.5 and table no.12
which shows the NSE traded 636132957 total contracts whose total
turnover is Rs.16807782.22 cr in the year 2012-13 in futures and options
segment while in currency segment in 483212156 total contracts have
traded whose total turnover is Rs.2655474.26 cr in same year.In case of
BSE the total numbers of contracts traded are 150068157 whose total
turnover is Rs.3884370.96 Cr in the year 2012-13 for all segments. In the
above case we can say that the performance of BSE is not encouraging
both in terms of volumes and numbers of contracts traded in all product
categories. The table no.4, table no.5 and table no.12 summarily specifies
the updated figures since 2003-04 to 2012-13 about number of contracts
traded and total volumes in all segments
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began on BSE.
1980-Khuso Committee recommends reintroduction of futures in
most commodities.
1983- Govt. ammends bye-laws of exchange of Bombay, Calcutta
and Ahmedabad and introduced carry forward trading in specified
shares.
1992 -Enactment of the SEBI Act.
1993 -SEBI Prohibits carry forward transactions.
1994 -Kabra Committee recommends futures trading in 9
commodities.
1995- G.S. Patel Committee recommends revised carry forward
system.
14th Dec. 1995 NSE asked SEBI for permission to trade index
futures
1996 -Revised system restarted on BSE.
18th Nov. 1996- SEBI setup LC Gupta committee to draft frame
work for index futures
11th May 1998- LC Gupta committee submitted report
1st June 1999- Interest rate swaps/forward rate agreements
allowed at BSE
7th July 1999- RBI gave permission to OTC for interest rate
swaps/forward rate agreements
24th May 2000 - SIMEX chose Nifty for trading futures and
options on an Indian index
25th May 2000- SEBI gave permission to NSE & BSE to do index
futures trading
9th June 2000-Equity derivatives introduced at BSE
12th June 2000- Commencement of derivatives trading (index
futures) at NSE
31st Aug. 2000-Commencement of trading futures & options on
Nifty at SIMEX
1st June 2001-Index option launched at BSE
64
securities
1st Nov. 2001-Stock futures launched at BSE
Nov. 2001 -Commencement of trading in futures on individual
security
9th Nov. 2001-Trading of Single stock futures at BSE
June 2003 -Trading of Interest rate futures at NSE
Aug. 2003- Launch of futures & options in CNX IT index
13th Sep. 2004-Weekly options of BSE
June 2005 -Launch of futures & options in Bank Nifty index
Dec. 2006 '-Derivative Exchange of the Year by Asia risk magazine
June 2007 -NSE launches derivatives on Nifty Junior & CNX 100
Oct. 2007- NSE launches derivatives on Nifty Midcap -50
1st Jan. 2008-Trading of Chhota (Mini) Sensex at BSE
1st Jan. 2008-Trading of mini index futures & options at NSE
3rd March 2009-Long term options contracts on S&P CNX Nifty
index
NA Futures & options on sectoral indices ( BSETECK, BSE FMCG,
CME at NSE
Oct. 2010- Introduction of European style stock option at
NSEJournal of Business Management & Social Sciences Research
(JBM&SSR) ISSN No: 2319-5614
Oct. 2010 -Introduction of Currency options on USD INR by NSE
July 2011- Commencement of 91 day GOI trading Bill futures by
NSE
Aug. 2011 -Launch of derivative on Global Indices at NSE
Sep. 2011- Launch of derivative on CNX PSE & CNX infrastructure
Indices at NSE
30th March 2012-BSE launched trading in BRICSMART indices
derivatives
Insurance Market
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In India the advent of Life Insurance started in the year 1818 with the
establishment of the Oriental Life Insurance Company in Calcutta. In the
year 1829, the Madras Equitable had began the life insurance business in
the Madras Presidency. British Insurance Act enactment was done in the
year 1870. In the last three decades of the nineteenth century, the
Bombay Mutual (1871), Oriental (1874) and Empire of India (1897) were
started in the Bombay Residency. This era, however, was dominated by
foreign insurance offices which did good business in India, namely
Albert Life Assurance, Royal Insurance, Liverpool and London Globe
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Insurance and the Indian offices were up for hard competition from the
foreign companies.
History of general insurance was during the 17th century to the
Industrial Revolution in the west and the consequent growth of seafaring trade and commerce in the 17th century. The General Insurance
has its roots in the year 1850 in Calcutta from the establishment of
Triton Insurance Company Ltd., by British. The Indian Mercantile
Insurance Ltd was set up in the year 1907. As this was the first company
to transact all classes of general insurance business. In the year 1957
General Insurance Council, a wing of the Insurance Association of India
was established.
With the emergence of growing demand for insurance, more and more
insurance companies are now emerging in the Indian Insurance
Industry. With the opening up of the economy, there are several
international leaders in the insurance of India are trying to venture into
the India insurance industry. In the year 1993, Malhotra Committee was
formed which initiated reforms in the Indian Insurance Industry. The
aim of which was to assess the functionality of the industry. It was
incharge of recommending the future path of insurance in India.It even
attempted to improve various aspects, making them more appropriate
and effective for the Indian market.
In the year 1999 The Insurance Regulatory and Development Authority
Act was formulated which brought about several crucial policy changes
in the India. In 2000 it led to the formation of the Insurance Regulatory
and Development Authority. The goals of IRDA are to safeguard the
interests of insurance policyholders, as well as to initiate different policy
measures to help sustain growth in the industry. This Authority has
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Types of Insurance
1. Life Insurance is all about guaranteeing a specific sum of money to
a designated beneficiary upon the death of the insured, or to the
insured if he or she lives beyond a certain age.
2. Health Insurance - it is Insurance against expenses incurred
through illness of the insured or the person who takes up the
insurance.
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Latest developments
In November 2009 According to the industry body report
publication, the medical insurance sector would account for US$ 3
billion in the next three years.
In the year 2008-09 the IRDA in its annual report said that the
Health insurance premium collections touched US$ 1.45 billion
compared with US$ 1.13 billion in the previous year.
Further in 2009 the total premium between April and December
was US$ 1.35 billion, up from US$ 1.12 billion, an increase of 20 %,
as per figures released by the regulator.
According to IRDA guidance note released by IRDA, the regulator
has increased the lock-in period for all unit-linked insurance plans
(ULIPS) to five years from the current three years, which makes
them long-term financial instruments and provide risk protection.
The commission and expenses have also been reduced by evenly
distributing them throughout the lock-in period.
In the year 2010-2011 The Indian insurance unit of Dutch financial
services firm ING plans to invest US$ 51 million to fund expansion
in the country. 100 branches will be opened by Private life insurer
Future General India will expand its distribution network in
addition to its existing network of 91 branches during 2010. There
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The total market size of the insurance sector in India was US$ 66.4
billion in FY 13. It is projected to touch US$ 350-400 billion by 2020.
India was ranked 10th among 147 countries in the life insurance business
in FY 13, with a share of 2.03 per cent. The life insurance premium
market expanded at a CAGR of 16.6 per cent from US$ 11.5 billion to
US$ 53.3 billion during FY 03-13. The non-life insurance premium
market also grew at a CAGR of 15.4 per cent in the same period, from
US$ 3.1 billion to US$ 13.1 billion.
Digital@Insurance-20X By 2020, by Boston Consulting Group (BCG)
and Google India forecasts that insurance sales from online channels will
grow 20 times from present day sales by 2020, and overall internet
influenced sales will touch Rs 300,000-400,000 crore (US$ 49.63-66.18
billion).
Investment corpus in India's pension sector is projected to cross US$ 1
trillion by 2025, following the passage of the Pension Fund Regulatory
and Development Authority (PFRDA) Act 2013, as per a joint report by
CII-EY on Pensions Business in India.
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Government Initiatives
The Union Budget 201 4-15 increased the FDI limit in insurance to 49
per cent. The increase in the FDI limit could help the insurance industry
in two ways. One, this could help companies access capital more easily
and, two, it could act as a trigger for listing of insurance players, which
will offer a better benchmark to value these companies.
In a bid to facilitate banks to provide greater choice in insurance
products through their branches, a proposal could be made which will
allow banks to act as corporate agents and tie up with multiple insurers.
A committee established by the Finance Ministry of India is likely to
suggest this model as an alternative to the broking model.
Road Ahead
The future of India's insurance sector looks good, driven by the country's
favourable demographic, greater awareness, supportive government
which enacts policies that improve business, customer-centric products,
and practices that give businesses the best environment to grow. India's
insurable population is anticipated to touch 75 crore in 2020, with life
expectancy reaching 74 years. Life insurance is projected to comprise 35
per cent of total savings by the end of this decade, compared to 26 per
cent in 2009-10.
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Solutions
By 2004, it was becoming increasingly clear that while some elements of
modernization of the financial system had taken place from 1992 to
2004, financial economic policy needed to be rethought on a much larger
scale to address the problems facing the system. As is the convention in
India, the consensus on desired reforms was constructed through reports
from four expert committees on:
1.
2.
3.
4.
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Primary Data
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I spoke to close relatives who have had experience with the financial
markets. They have seen the Indian markets transform from the 1980s
till the current day.
Q. What were the markets like in the 1980s as compared to the current
day?
A. In the 1980s there was much less use of technology. The open outcry
was still in existence which made the market place really chaotic. Now
everything is computarised therefore making trading much more
convenient and also removing the chances of human error.
Q. How has globalization affected the markets?
A. The SEBI has taken many efforts to remove restrections on foreign
players entering the markets. There are less issues when it comes to
FDIs and FFIs and thus the Indian forex market has boomed and it has
also made India a very well recognized economy in the world. Foreign
investors realize that there is no better place to invest as the Indian
economy is on the massive rise and seems that it will continue this trend.
Q. Have you noticed any change in the way investors trade due to the
changes made by the government?
A. The government has introduced many methods via which companies
are required to be more transparent and hence they have to reveal their
financials in a more detailed way. This has helped investors to change
their method of analysis from technical to fundamental thus helping
investors make decisions on number which always proves to be a more
informed decision.
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Q. The value of securities traded has obviously gone up from back in the
day. Did you expect such a massive increase in the volume of trade?
A. To be honest, this increse in trade does not come as a shock to me
because of the various ammendments made in the different markets. All
these changes made have been positive ones and were designed in a way
to increase the value of securities traded. I would be more taken aback if
the volume of trade had not been as much as it is today.
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Conclusion
The Indian Financial System has been in existence for centuries. From
the existence of barter trading to trading with gold to the current high
tech modes of e-finacining and trading. The current heights that the
Indian Fiancial System has reached have obviously not been attained
overnight. As the popular saying goes Rome wasnt built in a day in the
same way the Indian Financial Markets have gradually expanded and
improved step by step. This project clearly outlines the strides that have
been taken by the government and the financial instituitions to improve
and modernize the markets. The numbers that have been given in the
project are a clear proof of the positive changes that have been made. If
the trend that has been set in the last 35 years or so continues in the
years to come then truly the sky is the limit for the Indian economy. The
improvement of technology and enactment of new acts has set the
economy in the right direction and the only direction is upwards. The
main markets that have been covered in the project are :
Commodity Markets
Money Markets
Insurance Markets
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The resesarch methods that I have used also reiterate my faith in the
indian economy. As a youth of the nation I know that India is headed in
the right direction and I can feel safe in this nation. The above
mentioned markets are the main places where investments take place.
The seeds have been sown years back and with the introduction of the
new government and the imrpovement of technology and awareness of
the investors increasing, our nation seems destined for economic
stability and greatness!
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