CHAPTER NO.

4 CONCEPTUAL FRAMEWORK

4.1 Introduction

A financial service is a term used to refer services provided by the

financial industries. In a narrow sense, a financial service otherwise called
financial intermediation includes all types‟ financial activities, which are
carried on by financial institutions. In a broader sense financial service means
the „mobilization and allocation of savings‟ i.e. transformation of savings into
investment. Financial service can be defined as activities benefits and
satisfaction, connected with the sale of money that offers to users and
consumers, financial related values.

Financial services are the largest industry in the world in terms of

earnings. Financial services institutions offer wide-ranging variety of products
and services in large area in accordance with the requirements and needs of
customers the financial services institutions include both capital and money
market intermediaries. The capital market intermediaries consist of term
lending institutions and investing institutions which mainly provide long term
funds. Money market institutions consist of commercial and cooperative banks
and other development banks supplying short term funds.

Financial services include a multiplicity of monetary activities namely

factoring, merchant banking, lease and hire purchase financing, venture
capital, consortium lending, underwriting and new issue marketing, bill
discounting, investment advisory services, corporate advisory services,
mergers acquisition and amalgamations, securitization, mutual funds, portfolio
management services, technical consultancy and project preparation, forward
contracts, options, features, swaps, derivative security etc.

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 4.2 Kinds of Financial Services:

Financial services provided by financial institutions can be classified

broadly into two categories:

A) Fund-based Services
B) Fee-based Services

4.2.1 Asset Based/Fund-based Services: In fund based financial services,

money in the form of cash is involved in the transaction. Following are the
asset or fund based services provided by financial institutions:

1. Lease financing

2. Hire Purchase

3. Factoring

4. Forfeiting

5. Venture Capital Financing

6. Underwriting of Public Issue

7. Mutual Fund

8. Bill Discounting

9. Foreign Exchange Service

10. Housing finance

11. Insurance Services

1. Lease Financing:

Leasing financing is a financial intermediary service provided by a

leasing company for the procurement of assets through lease. A lease
transaction is a commercial arrangement whereby an equipment owner or
manufacturer conveys to the equipment user the right to use the equipment in
return for rental. It enables a firm to use the services of machinery and
equipment without making investment for the same or incurring a debt. Leases

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have become more prevalent as businesses and consumers look for alternative
source of finance for the acquisition of fixed assets. Leasing is an option for
corporate enterprises to conserve capital because, in effect, they obtain 100 %
finance for obtaining assets.

2. Hire Purchase:

Hire purchase refers to term loans provided for the purchase of fixed
assets and consumer durables. It is a financial service provided by specialized
hire purchase companies, financial institutions and commercial banks. Under a
hire purchase transaction, the hire purchaser acquires the asset immediately on
signing the hire purchase agreement but the ownership or title of the same is
transferred only when the last instalment of hire is paid. The buyer gets the
facility of paying the amount in instalments under this system and the seller is
able to sell more goods under the this system with the added security to
repossess the goods in case the buyer makes any default in the payment of any
instalments.

3. Factoring:

Factor is a financial institution which provides financial service called

factoring. Factoring means purchase of book-debts or conversion of credit
sales into cash. Factoring is an arrangement in which receivables on account of
sale of goods or services are sold to the factor at a certain discount. The sale of
the receivables essentially transfers ownership of the book debts to the factor,
indicating that the factor obtains all the rights and risks associated with the
receivables to solve the client firm‟s liquidity problem. The factoring
institution also eliminates the client‟s risk of bad debts by taking over the
responsibility of book debts of the client.

4. Forfeiting:

Forfeiting is another source of financing against receivables. It is a type

of finance of receivables pertaining to international trade. Forfeiting is a
source of trade finance, which enables exporters to get funds from the forfeiter
on transferring the right to recover the debts from the importer. Forfeiting is

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different from the factoring operation in the sense that forfeiting is a
transaction based operation while factoring is a firm based operation.

5. Venture Capital:

Venture capital is a type of private equity capital typically provided by

professional, outside investors to new, highly potential and growth companies
in the interest of taking the company to an IPO or trade sale of the business. It
is a very important source of financing for start-up ventures, especially those
which do not have access to other sources of capital. This form of raising
capital is popular among new companies, or ventures, with a limited operating
history that cannot raise capital through a debt issue or equity offering.
Venture capital finance may be provided by wealthy individual investors,
mutual fund companies, government backed investment corporations,
insurance companies, investment banking firms, professionally managed
venture capital firms etc.

6. Underwriting of Public Issue:

Underwriting is a fund based service rendered by development banks,

commercial banks, institutional investors, merchant banker, individuals,
stockbrokers, trusts, investment and insurance companies. Underwriting is an
agreement, entered into by a company with a financial agency, in order to
ensure that the public will subscribe for the entire issue of shares or debentures
made by the company. Underwriter agrees to buy that part of the company
issues, which are not subscribed to by the public in consideration of a specified
underwriting commission.

7. Mutual Fund:

A mutual fund is a trust that pools the savings of a number of investors

with certain similar investment goals. Mutual fund is an investment vehicle
that is made up of a pool of funds collected from many investors for the
purpose of investing in securities such as stocks, bonds, debentures short-term
money market instruments, or a combination of these assets. Every mutual
fund is managed by a fund manager. The fund manager pools money from
different investors and invest in various types of capital and money market

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instruments. The fund manager exercises his management skills and necessary
research skills to ensure much better return than what an investor can manage
on his own.

8. Bill discounting:

One of the methods of providing credit to customers by bank is by discounting

of commercial bills at a prescribed discount rate. The discounting of bills is a widely
used source of short-term finance in the Indian corporate sector. This facility is
provided by commercial bank as well as by private financial companies. Bill
discounting has some similarities with factoring. Both these make available to the
supplier finance against invoices.

9. Foreign Exchange Service:

Foreign exchange services are provided mainly by commercial banks.

Foreign exchange services include purchase and sale of foreign currencies and
transfer of foreign funds by electronic media.

10. Housing Finance:

Housing finance is a fund based service provided by housing finance

institutions. Housing finance involves extending finance for the setting up of
housing units. Easy access to institutional finance at affordable rates is an
essential pre-requisite for accelerating the tempo of housing activity. Housing
finance companies, commercial banks, LIC, GIC and HUDCO are the major
suppliers of housing finance. HUDCO was established with the object of
assisting various agencies and authorities in upgrading the housing conditions
in the country. National housing bank was established to function as a
principal agency to promote housing finance institutions and to provide
financial and other support to such institutions.

11. Insurance Services:

Insurance is a financial service which involves the transfer of loss

exposures of several entities into a common pool, and redistribution of the cost
of actual losses among the members of the pool. Insurance companies offer
protection against unforeseen events like human death, accident, marine,

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 motor vehicle, fire, burglary, flood, health and so on. Life insurance
companies cover risk of life human beings and all risks other than non-life are
covered by general insurance companies.

4.2.2 Fee-based/Advisory Services/Non-Fund Services:

Today customers are not satisfied with mere the provision of asset base or
fund base services. Besides fund based activities they expect more advisory services
from the financial intermediaries. In fee based financial services no money is directly
involved in the transaction. In fee based services the financial institutions provide
various financial services and levied fees as a charge for rendering financial services.
Following are the based services provided by banking and non-banking financial
institutions:

1. Credit Rating

2. Merchant Banking

3. Managing of Public Issue of Securities

4. Portfolio Management Services

5. Project Counselling

6. Advisory Services relating to mergers and takeovers

7. Loan Syndication

8. Investment Services for NRI‟s

9. Intermediation and Advisory Services by Brokers

10. Depository Services

11. Other Services

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1. Credit Rating:

Credit rating information is a fee based financial service provided by the

credit rating agencies, which is useful to the investors, corporates, banks and
other financial institutions. Credit rating gives an idea about the financial
strength of the company issuing securities. A credit rating is an opinion on the
relative degree of risk associated with timely payment of interest and principal
on debt instrument.

A simple alphanumeric number is normally used to convey a credit

rating. An opinion of credit rating agency will be of great assistance to the
investors in making investment decisions. A credit rating is not an assurance of
repayment of the rated instrument. Rather, it is an opinion on the relative
degree of risk associated with such repayment.

2. Merchant Banking:

Merchant banker is an important financial intermediary who provides

wide range of financial services to the corporates and investors it helps the
growth of the corporate sector and ultimately reflects upon the overall
economic development of the country. Merchant bankers transform capital
from those who own it to those who use it. Modern merchant bankers offer a
wide range of activities and perform divergent functions like issue
management, underwriting, portfolio management, venture capital financing,
loan syndication, consultancy, advisory and a host of other functions.

3. Managing of Public Issue of Securities:

Managing of public issues involves marketing of corporate securities i.e.

equity shares, preference shares and debentures by offering them for public
subscription. Merchant bankers assist the issuer for the completion of all
formalities under the Indian Companies Act, SEBI Act, and listing of shares in
Stock Exchanges.

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4. Portfolio Investment Management Services:

One of the important functions of a merchant banker is to provide

portfolio management services to their customers Portfolio refers to
investment in different kinds of securities such as shares and debentures issued
by different companies. It is a combination of asset but a carefully blended
asset combination. Portfolio management refers to marinating proper
combination of securities (equity and debt) in a manner that they give
maximum return to the client.

5. Project Counselling:

Project counselling is another important service rendered by merchant

bankers to their clients. It refers to the development of the idea of a project,
preparation and technical appraisal of projects, providing of advisory services
etc.

6. Advisory Services relating to Mergers and Takeovers:

Merchant bankers provide expert advice to their clients regarding

takeovers, acquisitions and mergers Merchant banker‟s acts as middleman in
between these companies and they negotiate the mode of payment and get
approval from government and other statutory authorities. On behalf of their
customers, merchant bankers comply with all the statutory and legal
requirements for the mergers and acquisitions.

7. Loan Syndication:

Loan syndication is another important service provided by a merchant

banker. Under loan syndication, merchant bankers help their clients in
preparation and submission of application for raising long term loans from
Indian and foreign countries.

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8. Investment Services for NRI’s:

Merchant banks provide various kinds of services to Non-Resident

Indians. Merchant bankers help them in choosing the shares and offer expert
advice for fulfilling government regulations and thereby mobilizing more
resources for the corporate sector.

9. Intermediation and Advisory Services by Brokers:

Stock broker is a member of a recognized stock exchange who assists

their clients in buying, selling or dealing in securities. Stock broker is not
allowed to buy, sell or deal in securities unless he or she holds a certificate of
registration from the SEBI.

10. Depository Services:

Depository is the place where the securities are deposited. A depository

is an organization where the securities of a shareholder are held in electronic
form instead of holding paper certificates. Depositories are registered with the
SEBI and are governed by the provisions of Depositors Act. Depository
participant is an agent of the depository and is authorised to offer depository
services to investors

11. Other Services:

Besides the above mentioned services, financial service providers offer

numerous other services, which are listed below:

a) Offer services to the promoters of new ventures.

b) Assist existing companies in expansion, diversification and modernization.

c) Business Valuation.

d) Private placement of securities.

e) Buy back assignments.

f) Share valuation.

g) Valuation of assets.

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h) Corporate tax planning.

i) Maintaining register of shareholders and debentures holders

j) Acting as share transfer agent.

k) Acting as trustees for debenture holders

l) Acting as an agent for paying interest and dividend etc.

m) Providing margin money for working capital.

n) Restructuring services.

o) Clearing services etc.

4.3 Concept of Financial Market in India

We all know that a business needs finance from the time an entrepreneur
makes the decision to start it. It needs finance both for working capital
requirements such as payments for raw materials and salaries to its employees,
and fixed capital expenditure such as the purchase of machinery or building or
to expand its production capacity. The above example gives a fair picture of
how companies need to raise funds from the capital markets. Idea Cellular
decided to enter the Indian capital market for its needs of expansion. In this
chapter you will study concepts like private placement, Initial public Offer
(IPO) and capital markets which you come across in the example of Idea
Cellular. Business can raise these funds from various sources and in different
ways through financial markets. This chapter provides a brief description of
the mechanism through which finances are mobilised by a business
organisation for both short term and long term requirements. It also explains
the institutional structure and the regulatory measures for different financial
markets (Benson Kunju, 2012).

4.3.1 Concept of Financial Market

A business is a part of an economic system that consists of two main

sectors – households which save funds and business firms which invest these
funds. A financial market helps to link the savers and the investors by

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 mobilizing funds between them. In doing so it performs what is known as an
allocative function. It allocates or directs funds available for investment into
their most productive investment opportunity. When the allocative function is
performed well, two consequences follow:
• The rate of return offered to households would be higher
• Scarce resources are allocated to those firms which have the highest
productivity for the economy.
There are two major alternative mechanisms through which allocation
of funds can be done: via banks or via financial markets. Households can
deposit their surplus funds with banks, who in turn could lend these funds to
business firms. Alternately, households can buy the shares and debentures
offered by a business using financial markets. The process by which allocation
of funds is done is called financial intermediation. Banks and financial markets
are competing intermediaries in the financial system, and give households a
choice of where they want to place their savings.
Figure No. 4.1 Financial System

Source: As per the research study done by the researcher (Self Creation)

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 A financial market is a market for the creation and exchange of
financial assets. Financial markets exist wherever a financial transaction
occurs financial transactions could be in the form of creation of financial
assets such as the initial issue of shares and debentures by a firm or the
purchase and sale of existing financial assets like equity shares, debentures and
bonds.
4.3.2 Functions of Financial Market

Financial markets play an important role in the allocation of scarce

resources in an economy by performing the following four important
functions.
1. Mobilisation of Savings and channelling them into the most Productive
Uses:
A financial market facilitates the transfer of savings from savers to
investors It gives savers the choice of different investments and thus helps to
channelize surplus funds into the most productive use.
2. Facilitating Price Discovery:
You all know that the forces of demand and supply help to establish a
price for a commodity or service in the market. In the financial market, the
households are suppliers of funds and business firms represent the demand.
The interaction between them helps to establish a price for the financial asset
which is being traded in that particular market.
3. Providing Liquidity to Financial Assets:
Financial markets facilitate easy purchase and sale of financial assets.
They provide liquidity to financial assets, so that they can be easily converted
into cash whenever required. Holders of assets can readily sell their financial
assets through the mechanism of the financial market.
4. Reducing the Cost of Transactions:
Financial markets provide valuable information about securities being
traded in the market. It helps to save time, effort and money that both buyers
and sellers of a financial asset would have to otherwise spend to try and find
each other. The financial market is thus, a common platform where buyers and
sellers can meet for fulfilment of their individual needs.

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 Financial markets are classified on the basis of the maturity of financial
instruments traded in them. Instruments with a maturity of less than one year
are traded in the money market. Instruments with longer maturity are traded in
the capital market.
Figure No. 4.2 Classification of Financial Market

Source: As per the research study done by the researcher (Self Creation)

4.4 Basics of Financial Markets:

4.4.1 Investment:
The money you earn is partly spent and the rest saved for meeting future
expenses. Instead of keeping the savings idle you may like to use savings in
order to get return on it in the future, this is called Investment.
4.4.2 Purpose of Investment:
One needs to invest to:
 earn return on your idle resources
 generate a specified sum of money for a specific goal in life
 make a provision for an uncertain future
One of the important reasons why one needs to invest wisely is to meet the
cost of Inflation. Inflation is the rate at which the cost of living increases. The
cost of living is simply what it costs to buy the goods and services you need to

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 live. Inflation causes money to lose value because it will not buy the same
amount of a good or a service in the future as it does now or did in the past.
For example, if there was a 6% inflation rate for the next 20 years, a ₹ 100
purchase today would cost ₹ 321 in 20 years this is why it is important to
consider inflation as a factor in any long-term investment strategy. Remember
to look at an investment‟s „real‟ rate of return, which is the return after
inflation. The aim of investments should be to provide a return above the
inflation rate to ensure that the investment does not decrease in value. For
example, if the annual inflation rate is 6%, then the investment will need to
earn more than 6% to ensure it increases in value. If the after-tax return on
your investment is less than the inflation rate, then your assets have actually
decreased in value; that is, they won‟t buy as much today as they did last year
(Benson Kunju, 2012).
4.4.3 Time of Investment:
The sooner one starts investing the better. By investing early you allow
your investments more time to grow, whereby the concept of compounding (as
we shall see later) increases your income, by a cumulating the principal and
the interest or dividend earned on it, year after year. The three golden rules for
all investors are:
 Invest early
 Invest regularly
 Invest for long term and not short term
4.4.4 Precautions before investment in the stock markets:
Here are some useful pointers to bear in mind before you invest in the
markets:
 Make sure your broker is registered with SEBI and the exchanges and do not
deal with unregistered intermediaries.
 Ensure that you receive contract notes for all your transactions from your
broker within one working day of execution of the trades.
 All investments carry risk of some kind. Investors should always know the risk
that they are taking and invest in a manner that matches their risk tolerance.
 Do not be misled by market rumours, luring advertisement or „hot tips‟ of the
day.

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 Take informed decisions by studying the fundamentals of the company. Find
out the business the company is into, its future prospects, quality of
management, past track record etc. Sources of knowing about a company are
through annual reports, economic magazines, and databases available with
vendors or your financial advisor.
 If you‟re financial advisor or broker advises you to invest in a company you
have never heard of, be cautious. Spend some time checking out about the
company before investing.
 Do not be attracted by announcements of fantastic results/news reports, about
a company. Do your own research before investing in any stock.
 Do not be attracted to stocks based on what an internet website promotes,
unless you have done adequate study of the company.
 Investing in very low priced stocks or what are known as penny stocks does
not guarantee high returns.
 Be cautious about stocks which show a sudden spurt in price or trading
activity.
 Any advice or tip that claims that there are huge returns expected, especially
for acting quickly, may be risky and may to lead to losing some, most, or all of
your money.

4.5 Money Market

A financial market for short-term financial assets is called the money
market. Money market is a mechanism that deals with the lending and
borrowing of short term funds. It is a centre in which financial institutions join
together for the purpose of dealing in financial or monetary assets, which may
be of short term maturity. The money market is a market for short term
financial assets that are close substitutes of money. Close substitutes of money
denote any financial assets, which can be quickly converted into money with
the minimum transaction cost and without a loss. In short, money market is a
market where money is bought and sold. The short term debts and securities
sold on the money markets, which are known as money market instruments,
have maturities ranging from one day to one year extremely liquid (Benson
Kunju, 2012).

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 Money market is important for business because it allows companies
with a temporary cash surplus to invest in short-term securities. It also allows
companies with a temporary cash shortfall to sell securities or borrow funds on
a short-term basis. In essence, it acts as a repository for short-term funds. A
well-functioning money market provides a relatively safe and steady income-
yielding avenue, for short-term investment of funds for both banks and
corporates and allows the investor institutions to optimize the yield from
temporary surplus funds (Benson Kunju, 2012).
4.5.1 Definition of Money Market
Money market is the market in which short term funds are borrowed
and lent. By Geoffery Crowther defines money market as, “The collective
name given to the various firms and institutions that deal in the various grades
of near-money”. As per the definition given by RBI, money market is “the
centre for dealings, mainly short-term character, in money assets. It meets the
short-term requirements of borrowers and provides liquidity or cash to the
lenders It is the place where short-term surplus investible funds at the disposal
of financial and other institutions and individuals are bid by borrowers again
comprising institutions, individuals and also the government itself” (Benson
Kunju, 2012).
4.5.2 Features of Money Market
Money market refers to the market for short-term securities with
original maturity of one year or less. These securities include treasury bills,
certificate of deposits, commercial paper and so on. The most important
feature of the money market instrument is that it is liquid i.e. it can be made
quickly into cash. It also provides an opportunity for balancing the short-term
surplus funds of lenders and the requirements of borrowers The RBI is a
regular player in the money market and intervenes to regulate the liquidity and
interest rates through its monetary policy to achieve the board objectives of
price stability, efficient allocation of credit and a stable foreign exchange
market. The salient features of money market are the below (Benson Kunju,
2012):
1. Money market deals with securities which are highly liquid.
2. It deals with securities which are readily transferable.
3. Money market specializes in very short-term debt securities.

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4. Most of the transactions in money market have a maturity period of overnight
to one week.
5. Money market is a heterogeneous market with several sub markets. Each sub-
market deals with specific short term credit instrument.
6. Money market is a wholesale market.
7. The role of individuals in money market is not significant.
8. Money market does not refer to any specific place where borrowers and
lenders meet each other.
9. Borrowing and lending in money market is in high volume.
10. Due to high volumes, transaction cost is high.
11. Money market securities offer lower rate of return than most other securities.
12. The risk of investment is very low.
13. Money market is a dealer market i.e. securities are bought and sold in their
own account.
14. Securities traded in money market are of high face value.
15. Money market is regulated by the RBI.
16. Money markets are generally associated with important places. In Indian
money market centres are located at major cities and industrial centres viz.
Mumbai, Chennai, Kolkata, Delhi etc.
4.5.3 Similarities of Money Market and Capital Market
Like capital market, money market is also an integral part of the
economy and it plays a vital role in the development of the economy. In the
absence of well-developed money market, it would be very difficult to pool
funds to finance large enterprises. Money market is the major mechanism
through which the RBI influences liquidity and the general price level of
interest rates. The monetary policies of the government have thus a direct
influence in the money market. The points of similarities of capital market and
money market are the following (Benson Kunju, 2012).
1. Money market and capital market are complimentary to each other and are not
competitive.
2. Certain institutions operate both in the money and capital market. For
example, commercial banks traditionally specialize in short term funds by
investing funds in money market securities also operates in the capital market.

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3. Money and capital markets are inter-dependent and the activities of one market
have their impact on the other market. The money market impacts the
activities of other segments of the financial system especially the capital
market.
4.5.4 Constituents of Money Market

Money market trades in short-term financial instruments called „paper‟.

The money market is the arena where in financial institutions makes available
to a broad range of borrowers and investors the opportunity to buy and sell
various forms of short term securities. Money market consist mainly two
constituents namely:
1. Borrowers of fund
2. Suppliers of fund
4.5.5 Structure of Money Market
Money market is a wholesale market. The money market is not a
physical place, but an informal network of banks and traders linked by
telephones, fax machines, computers etc. among people who may have never
met one another. There are a number of institutions (banks, primary dealers,
financial institutions, mutual funds, trusts, provident fund etc.) dealing in
money market instruments. As a primary dealer, Discount and Finance House
of India is an active player in this market and it widely deals in short term
money market instruments. RBI regulates money market instruments and the
participants of money market. The structure of money market consists of the
following segments (Benson Kunju, 2012):
1. Money Market Segments
2. Money Market Institutions
3. Money Market Instruments
4.5.6 Money Market Segments
Money market is heterogeneous in character. Money market consists of
a number of organized institutions with a number of divisions and sub-
divisions. Each division or sub-market specializes in the market for overnight
call and term money between banks and institutions and repo transactions. Call
money/repo are very short-term money market products. The main segments
of the money market are the following:

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 1. Call or notice money market
2. Commercial bill market
3. Acceptance market
4. Treasury bills market
5. Market for commercial paper
6. Collateral loan market
7. Market for certificate deposits
8. Markets for money market mutual fund
4.5.7 Money Market Instruments
1. Treasury Bill:
A Treasury bill is basically an instrument of short-term borrowing by the
Government of India maturing in less than one year. They are also known as
Zero Coupon Bonds issued by the Reserve Bank of India on behalf of the
Central Government to meet its short-term requirement of funds. Treasury bills
are issued in the form of a promissory note. They are highly liquid and have
assured yield and negligible risk of default. They are issued at a price which is
lower than their face value and repaid at par. The difference between the price
at which the treasury bills are issued and their redemption value is the interest
receivable on them and is called discount. Treasury bills are available for a
minimum amount of ₹ 25,000 and in multiples thereof. Example: Suppose an
investor purchases a 91 days Treasury bill with a face value of ₹ 1,00,000 for ₹
96,000. By holding the bill until the maturity date, the investor receives ₹
1,00,000. The difference of ₹ 4,000 between the proceeds received at maturity
and the amount paid to purchase the bill represents the interest received by him
(Benson Kunju, 2012).
2. Commercial Paper:
Commercial paper is a short-term unsecured promissory note, negotiable
and transferable by endorsement and delivery with a fixed maturity period. It
is issued by large and creditworthy companies to raise short-term funds at
lower rates of interest than market rates. It usually has a maturity period of 15
days to one year. The issuance of commercial paper is an alternative to bank
borrowing for large companies that are generally considered to be financially
strong. It is sold at a discount and redeemed at par. The original purpose of
commercial paper was to provide short-terms funds for seasonal and working

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 capital needs. For example companies use this instrument for purposes such as
bridge financing. Example: Suppose a company needs long-term finance to
buy some machinery. In order to raise the long term funds in the capital market
the company will have to incur floatation costs (costs associated with floating
of an issue are brokerage, commission, printing of applications and advertising
etc.). Funds raised through commercial paper are used to meet the floatation
costs. This is known as Bridge Financing (Benson Kunju, 2012).
3. Call Money:
Call money is short term finance repayable on demand, with a maturity
period of one day to fifteen days, used for inter-bank transactions. Commercial
banks have to maintain a minimum cash balance known as cash reserve ratio.
The Reserve Bank of India changes the cash reserve ratio from time to time
which in turn affects the amount of funds available to be given as loans by
commercial banks. Call money is a method by which banks borrow from each
other to be able to maintain the cash reserve ratio. The interest rate paid on call
money loans is known as the call rate. It is a highly volatile rate that varies from
day-to-day and sometimes even from hour-to-hour. There is an inverse
relationship between call rates and other short-term money market instruments
such as certificates of deposit and commercial paper. A rise in call money rates
makes other sources of finance such as commercial paper and certificates of
deposit cheaper in comparison for banks raise funds from these sources (Benson
Kunju, 2012).
4. Certificate of Deposit:
Certificates of deposit (CD) are unsecured, negotiable, short-term
instruments in bearer form, issued by commercial banks and development
financial institutions. They can be issued to individuals, corporations and
companies during periods of tight liquidity when the deposit growth of banks is
slow but the demand for credit is high. They help to mobilise a large amount of
money for short periods (Benson Kunju, 2012).

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5. Commercial Bill:
A commercial bill is a bill of exchange used to finance the working
capital requirements of business firms. It is a short-term, negotiable, self-
liquidating instrument which is used to finance the credit sales of firms. When
goods are sold on credit, the buyer becomes liable to make payment on a
specific date in future. The seller could wait till the specified date or make use
of a bill of exchange. The seller (drawer) of the goods draws the bill and the
buyer (drawee) accepts it. On being accepted, the bill becomes a marketable
instrument and is called a trade bill. These bills can be discounted with a bank if
the seller needs funds before the bill matures. When a trade bill is accepted by a
commercial bank it is known as a commercial bill.

4.5.8 Shortcomings of Indian Money Market

Money market is an important segment of the Indian financial system.
A well-developed money market is the key to the effective transmission of
monetary policy impulses and integration among various segments of the
financial market. With a view to improving the functioning of various
segments of the money market and enhancing the smooth flow of funds across
instruments and participants, a host of measures helped in improving
transparency, facilitating price discovery and providing avenues for better
liquidity and risk management. Indian money market is relatively
underdeveloped and suffers from many deficiencies. There are number of
factors, which are responsible for the underdevelopment of Indian money
market. The important defects/characteristics of Indian money market are the
following (Benson Kunju, 2012).

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 Figure No. 4.3 Main Shortcomings of Indian Money Market

Absence of
Coordination

Absence of Developed Bill

Seasonal Market
Stringency of
Funds Shortage of Funds
in Money Market
Lack of Uniformity in
Interest Rates Dominance of
Indigenous
Bankers

Underdeveloped Banking
Habits
Source: As per the research study done by the researcher (Self Creation)

4.6 Capital Market

The term capital market refers to facilities and institutional
arrangements through which long-term funds; both debt and equity are raised
and invested. It consists of a series of channels through which savings of the
community are made available for industrial and commercial enterprises and
for the public in general. It directs these savings into their most productive use
leading to growth and development of the economy. The capital market
consists of development banks, commercial banks and stock exchanges. An
ideal capital market is one where finance is available at reasonable cost. The
process of economic development is facilitated by the existence of a well-
functioning capital market. In fact, development of the financial system is seen
as a necessary condition for economic growth. It is essential that financial
institutions are sufficiently developed and that market operations are free, fair,
competitive and transparent. The capital market should also be efficient in
respect of the information that it delivers, minimise transaction costs and
allocate capital most productively.

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 The Capital Market can be divided into two parts: a. Primary Market b.
Secondary Market (Natarajan, 2011)

4.7 Primary Market

The primary market is also known as the new issues market. It deals
with new securities being issued for the first time. The essential function of a
primary market is to facilitate the transfer of investible funds from savers to
entrepreneurs seeking to establish new enterprises or to expand existing ones
through the issue of securities for the first time. The investors in this market
are banks, financial institutions, insurance companies, mutual funds and
individuals. A company can raise capital through the primary market in the
form of equity shares, preference shares, debentures, loans and deposits. Funds
raised may be for setting up new projects, expansion, diversification,
modernisation of existing projects, mergers and takeovers etc. (Natarajan,
2011).

4.8 Stock Exchange

A stock exchange is an institution which provides a platform for
buying and selling of existing securities. As a market, the stock exchange
facilitates the exchange of a security (share, debenture etc.) into money and
vice versa. Stock exchanges help companies raise finance, provide liquidity
and safety of investment to the investors and enhance the credit worthiness of
individual companies.
Stock exchanges are the most perfect type of market for securities
whether of government and semi-government bodies or other public bodies as
also for shares and debentures issued by the joint-stock companies. In the
stock market, purchases and sales of shares are affected in conditions of free
competition. Government securities are traded outside the trading ring in the
form of over-the-counter sales or purchases. The bargains that are struck in the
trading ring by the members of the stock exchanges are at the fairest prices
determined by the basic laws of supply and demand (Natarajan, 2011).

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 4.8.1 History of Stock Exchanges

The only stock exchanges operating in the 19th century were those of
Mumbai set up in 1875 and Ahmedabad set up in 1984. These were organized
as voluntary non-profit-making associations of brokers to regulate and protect
their interests. Before the control on securities trading became a central subject
under the constitution in 1950, it was a state subject and the Bombay
Securities Contracts (Control) Act of 1925 used to regulate trading in
securities. Under this Act, the Mumbai Stock Exchange was recognized in
1927 and Ahmedabad in 1937. During the war boom, a number of stock
exchanges were organized even in Mumbai, Ahmedabad and other centers, but
they were not recognized. Soon after it becomes a Central Subject, Central
legislation was proposed and a Committee headed by A.D. Gorwala went into
the Bill for securities regulation. On the basis of the committee‟s
recommendations and public discussion, the Securities Contract (Regulation)
Act became law in 1956 (Natarajan, 2011).

4.8.2 Meaning of Stock Exchange

According to Securities Contracts (Regulation) Act 1956, “Stock
exchange means anybody or individuals whether incorporated or not,
constituted for the purpose of assisting, regulating or controlling the business
of buying, selling or dealing in securities”. It is an association of member
brokers for the purpose of self-regulation and protecting the interests of its
members
It can operate only if it is recognized by the Government under the
Securities Contracts (Regulation) Act, 1956. The recognition is granted under
section 3 of the Act by the Central Government, Ministry of Finance, and
Stock Exchange Division (Natarajan, 2011).

The powers of the Central Government under the Act are far-reaching
and include the following in particular:

1. Grant and withdrawal of recognition, approval or change of byelaws.

2. Call for periodical returns from the Stock Exchange.
3. Direct enquiries on the members or on the Stock Exchange.
4. Liability of the Exchange to submit annual reports.

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5. Directing the Stock Exchange to make certain rules.
6. Supersede the Governing Board of the Exchange.
7. Suspend the Governing Board of the Exchange.
8. Impose any other conditions or regulations for trading.

4.8.3 Functions of a Stock Exchange

The efficient functioning of a stock exchange creates a conducive climate
for an active and growing primary market for new issues. An active and healthy
secondary market in existing securities leads to positive environment among
investors. The following are some of the important functions of a stock exchange.
1. Providing Liquidity and Marketability to Existing Securities:
The basic function of a stock exchange is the creation of a continuous
market where securities are bought and sold. It gives investors the chance to
disinvest and reinvest. This provides both liquidity and easy marketability to
already existing securities in the market.
2. Pricing of Securities:
Share prices on a stock exchange are determined by the forces of
demand and supply. A stock exchange is a mechanism of constant valuation
through which the prices of securities are determined. Such a valuation
provides important instant information to both buyers and sellers in the
market.
3. Safety of Transaction:
The membership of a stock exchange is well regulated and its dealings
are well defined according to the existing legal framework. This ensures that
the investing public gets a safe and fair deal on the market.
4. Contributes to Economic Growth:
A stock exchange is a market in which existing securities are resold or
traded. Through this process of disinvestment and reinvestment savings get
channelized into their most productive investment avenues. This leads to
capital formation and economic growth.
5. Spreading of Equity Cult:
The stock exchange can play a vital role in ensuring wider share
ownership by regulating new issues, better trading practices and taking
effective steps in educating the public about investments.

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6. Providing Scope for Speculation:
The stock exchange provides sufficient scope within the provisions of
law for speculative activity in a restricted and controlled manner. It is
generally accepted that a certain degree of healthy speculation is necessary to
ensure liquidity and price continuity in the stock market (Natarajan, 2011).

4.9 Trading and settlement Procedure

Trading in securities is now executed through an on-line, screen-based

electronic trading system. Simply put, all buying and selling of shares and
debentures are done through a computer terminal. There was a time when in
the open outcry system, securities were bought and sold on the floor of the
stock exchange. Under this auction system, deals were struck among brokers,
prices were shouted out and the shares sold to the highest bidder. However,
now almost all exchanges have gone electronic and trading is done in the
broker‟s office through a computer terminal. A stock exchange has its main
computer system with many terminals spread across the country. Trading in
securities is done through brokers who are members of the stock exchange.
Trading has shifted from the stock market floor to the broker‟s office
(Natarajan, 2011).
Figure No. 4.4 IPO Process

Source: As per the research study done by the researcher (Self Creation)

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 Every broker has to have access to a computer terminal that is connected
to the main stock exchange. In this screen-based trading, a member logs on to
the site and any information about the shares (company, member, etc.) he
wishes to buy or sell and the price is fed into the computer. The software is so
designed that the transaction will be executed when a matching order is found
from a counter party. The whole transaction is carried on the computer screen
with both the parties being able to see the prices of all shares going up and
down at all times during the time that business is transacted and during
business hours of the stock exchange. The computer in the broker‟s office is
constantly matching the orders at the best bid and offer price. Those that are
not matched remain on the screen and are open for future matching during the
day (Natarajan, 2011).

4.9.1 Electronic trading systems or screen-based trading has certain

advantages:
1. It ensures transparency as it allows participants to see the prices of all
securities in the market while business is being transacted. They are able to see
the full market during real time.
2. It increases efficiency of information being passed on, thus helping in fixing
prices efficiently. The computer screens display information on prices and also
capital market developments that influence share prices.
3. It increases the efficiency of operations, since there is reduction in time, cost
and risk of error.
4. People from all over the country and even abroad who wish to participate in
the stock market can buy or sell securities through brokers or members without
knowing each other. That is, they can sit in the broker‟s office, log on to the
computer at the same time and buy or sell securities. This system has enabled a
large number of participants to trade with each other, thereby improving the
liquidity of the market.
5. A single trading platform has been provided as business is transacted at the
same time in all the trading centres. Thus, all the trading centres spread all
over the country have been brought onto one trading platform, i.e., the stock
exchange, on the computer.

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 Now, screen-based trading or on-line trading is the only way in which
you can buy or sell shares. Shares can be held either in physical form or an
electronic book entry form of holding and transferring shares can also be
adopted. This electronic form is called dematerialised form (Natarajan, 2011).
4.9.2 Steps in the Trading and Settlement Procedure

It has been made compulsory to settle all trades within 2 days of the
trade date, i.e., on a T+2 basis, since 2003. Prior to the reforms, securities were
bought and sold, i.e., traded and all positions in the stock exchange were
settled on a weekly/fortnightly settlement cycle whether it was delivery of
securities or payment of cash. This system prevailed for a long time as it
increased the volume of trading on the exchange and provided liquidity to the
system. However, since trades were to be settled on specified dates, this gave
rise to speculation and price of shares used to rise and fall suddenly due to
trading and defaults by brokers A new system, i.e., rolling settlement, was
introduced in 2000, so that whenever a trade took place it would be settled
after some days. Since 2003, all shares have to be covered under the rolling
settlement system on a T+2 bases, meaning thereby that transactions in
securities are settled within 2 days after the trade date. Since rolling settlement
implies fast movement of shares, it requires effective implementation of
electronic fund transfer and dematerialisation of shares (Natarajan, 2011).
The following steps are involved in the screen-based trading for buying
and selling of securities:
1. If an investor wishes to buy or sell any security he has to first approach a
registered broker or sub-broker and enters into an agreement with him. The
investor has to sign a broker-client agreement and a client registration form
before placing an order to buy or sell securities. He has also to provide certain
other details and information. These include:
• PAN number
(This is mandatory)
• Date of birth and address.
• Educational qualification and occupation.
• Residential status (Indian/NRI).
• Bank account details.

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• Depository account details.
• Name of any other broker with who registered.
• Client code number in the client registration form.
The broker then opens a trading account in the name of the investor.
2. The investor has to open a „demat‟ account or „beneficial owner‟ (BO)
account with a depository participant (DP) for holding and transferring
securities in the demat form. He will also have to open a bank account for cash
transactions in the securities market.
3. The investor then places an order with the broker to buy or sell shares. Clear
instructions have to be given about the number of shares and the price at which
the shares should be bought or sold. The broker will then go ahead with the
deal at the above mentioned price or the best price available. An order
confirmation slip is issued to the investor by the broker.
4. The broker then will go on-line and connect to the main stock exchange and
match the share and best price available.
5. When the shares can be bought or sold at the price mentioned, it will be
communicated to the broker‟s terminal and the order will be executed
electronically. The broker will issue a trade confirmation slip to the investor.
6. After the trade has been executed, within 24 hours the broker issues a
Contract Note. This note contains details of the number of shares bought or
sold, the price, the date and time of deal, and the brokerage charges. This is an
important document as it is legally enforceable and helps to settle
disputes/claims between the investor and the broker. A Unique Order Code
number is assigned to each transaction by the stock exchange and is printed on
the contract note.
7. Now, the investor has to deliver the shares sold or pay cash for the shares
bought. This should be done immediately after receiving the contract note or
before the day when the broker shall make payment or delivery of shares to the
exchange. This is called the pay-in day.
8. Cash is paid or securities are delivered on pay-in day, which is before the
T+2 day as the deal has to be settled and finalised on the T+2 day. The
settlement cycle is on T+2 day on a rolling settlement basis, w.e.f. 1 April
2003.

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9. On the T+2 day, the exchange will deliver the share or make payment to the
other broker. This is called the pay-out day. The broker then has to make
payment to the investor within 24 hours of the pay-out day since he has
already received payment from the exchange.
10. The broker can make delivery of shares in demat form directly to the
investor‟s demat account. The investor has to give details of his demat account
and instruct his depository participant to take delivery of securities directly in
his beneficial owner account.
4.9.3 Dematerialisation and Depositories
All trading in securities is now done through computer terminals. Since
all systems are computerised, buying and selling of securities are settled
through an electronic book entry form. This is mainly done to eliminate
problems like theft, fake/forged transfers, transfer delays and paperwork
associated with share certificates or debentures held in physical form.
This is a process where securities held by the investor in the physical
form are cancelled and the investor is given an electronic entry or number so
that she/he can hold it as an electronic balance in an account. This process of
holding securities in an electronic form is called dematerialisation. For this, the
investor has to open a demat account with an organisation called a depository.
In fact, now all Initial Public Offers (IPOs) are issued in dematerialisation
form and more than 99% of the turnover is settled by delivery in the demat
form (Natarajan, 2011).

4.9.4 Depository
Just like a bank keeps money in safe custody for customers; a
depository also is like a bank and keeps securities in electronic form on behalf
of the investor. In the depository a securities account can be opened, all shares
can be deposited, they can be withdrawn or sold at any time and instruction to
deliver or receive shares on behalf of the investor can be given. It is a
technology driven electronic storage system. It has no paper work relating to
share certificates, transfer, forms, etc. All transactions of the investors are
settled with greater speed, efficiency and use as all securities are entered in a
book entry mode.

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 In India, there are two depositories. National Securities Depositories
Limited (NSDL) is the first and largest depository presently operational in
India. It was promoted as a joint venture of the IDBI, UTI, and the National
Stock Exchange. The Central Depository Services Limited (CDSL) is the
second depository to commence operations and was promoted by the Bombay
Stock Exchange and the Bank of India. Both these national level depositories
operate through intermediaries who are electronically connected to the
depository and serve as contact points with the investors and are called
depository participants (Natarajan, 2011).
The depository participant (DP) serves as an intermediary between the
investor and the Depository (NSDL or CSDL) who is authorised to maintain
the accounts of dematerialised shares. Financial institutions, banks, clearing
corporations, stock brokers and nonbanking finance corporations are permitted
to become depository participants. If the investor is buying and selling the
securities through the broker or the bank or a non-banking finance corporation,
it acts as a DP for the investor and completes the formalities (Natarajan, 2011).

4.10 National Stock Exchange of India (NSE)

The National Stock Exchange is the latest, most modern and

technology driven exchange. It was incorporated in 1992 and was recognised
as a stock exchange in April 1993. It started operations in 1994, with trading
on the wholesale debt market segment. Subsequently, it launched the capital
market segment in November 1994 as a trading platform for equities and the
futures and options segment in June 2000 for various derivative instruments.
NSE has set up a nationwide fully automated screen based trading system. The
NSE was set up by leading financial institutions, banks, insurance companies
and other financial intermediaries. It is managed by professionals, who do not
directly or indirectly trade on the exchange. The trading rights are with the
trading members who offer their services to the investors The Board of NSE
comprises senior executives from promoter institutions and eminent
professionals, without having any representation from trading members
(Natarajan, 2011).

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4.10.1 Objectives of NSE
NSE was set up with the following objectives:
a. Establishing a nationwide trading facility for all types of securities.
b. Ensuring equal access to investors all over the country through an
appropriate communication network.
c. Providing a fair, efficient and transparent securities market using electronic
trading system.
d. Enabling shorter settlement cycles and book entry settlements.
e. Meeting international benchmarks and standards.
Within a span of ten years, NSE has been able to achieve its objectives for
which it was set up. It has been playing a leading role as a change agent in
transforming the Indian capital market. NSE has been able to take the stock
market to the door step of the investors
It has ensured that technology has been harnessed to deliver the services to the
investors across the country at the lowest cost. It has provided a nationwide
screen based automated trading system with a high degree of transparency and
equal access to investors irrespective of geographical location (Natarajan,
2011).

4.11 Bombay Stock Exchange Ltd. (BSE)

BSE Ltd. (formerly known as Bombay Stock Exchange Ltd) was
established in 1875 and was Asia‟s first Stock Exchange. It was granted
permanent recognition under the Securities Contract (Regulation) Act, 1956. It
has contributed to the growth of the corporate sector by providing a platform
for rising of capital. It is known as BSE Ltd but was established as the Native
Share Stock Brokers Association in 1875. Even before the actual legislations
were enacted, BSE Ltd already had a set of Rules and Regulations to ensure an
orderly growth of the securities market. As discussed earlier, a stock exchange
can be set up as a corporate entity with different individuals (who are not
brokers) as members or shareholders BSE is one such exchange set up as a
corporate entity for a broad shareholder base.

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4.11.1 Objectives of BSE
It has the following objectives,
(a) To provide an efficient and transparent market for trading in equity, debt
instruments, derivatives, and mutual funds.
(b) To provide a trading platform for equities of small and medium enterprises.
(c) To ensure active trading and safeguard market integrity through an
electronically-driven exchange.
(d) To provide other services to capital market participants, like risk
management, clearing, settlement, market data, and education.
(e) To conform to international standards.
Besides having a nation-wide presence, BSE has a global reach with
customers around the world. It has stimulated innovation and competition
across all market segments. It has established a capital market institute, called
the BSE Institute Ltd, which provides education on financial markets and
vocational training to a number of people seeking employment with stock
brokers The exchange has about 5000 companies listed from all over the
country and outside, and has the largest market capitalisation in India.

4.12 Securities and Exchange Board of India (SEBI)

The Securities and Exchange Board of India was established by the
Government of India on 12 April 1988 as an interim administrative body to
promote orderly and healthy growth of securities market and for investor
protection. It was to function under the overall administrative control of the
Ministry of Finance of the Government of India. The SEBI was given a
statutory status on 30 January 1992 through an ordinance. The ordinance was
later replaced by an Act of Parliament known as the Securities and Exchange
Board of India Act, 1992 (Natarajan, 2011).
4.12.1 Reasons for the Establishment of SEBI
The capital market has witnessed a tremendous growth during 1980‟s,
characterised particularly by the increasing participation of the public. This
ever expanding investor‟s population and market capitalisation led to a variety
of malpractices on the part of companies, brokers, merchant bankers,
investment consultants and others involved in the securities market. The
glaring examples of these malpractices include existence of self-styled

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merchant bankers unofficial private placements, rigging of prices, unofficial
premium on new issues, no adherence of provisions of the Companies Act,
violation of rules and regulations of stock exchanges and listing requirements,
delay in delivery of shares etc. These malpractices and unfair trading practices
have eroded investor confidence and multiplied investor grievances. The
Government and the stock exchanges were rather helpless in redressing the
investor‟s problems because of lack of proper penal provisions in the existing
legislation. In view of the above, the Government of India decided to set-up a
separate regulatory body known as Securities and Exchange Board of India
(Benson Kunju, 2012).
4.12.2 Purpose and Role of SEBI
The basic purpose of SEBI is to create an environment to facilitate
efficient mobilisation and allocation of resources through the securities
markets. It also aims to stimulate competition and encourage innovation. This
environment includes rules and regulations, institutions and their
interrelationships, instruments, practices, infrastructure and policy framework.
This environment aims at meeting the needs of the three groups which
basically constitute the market, the issuers of securities (Companies), the
investors and the market intermediaries (Benson Kunju, 2012).
• To the issuers, it aims to provide a market place in which they can
confidently look forward to raising finances they need in an easy, fair and
efficient manner.
• To the investors, it should provide protection of their rights and interests
through adequate, accurate and authentic information and disclosure of
information on a continuous basis.
• To the intermediaries, it should offer a competitive, professionalised and
expanding market with adequate and efficient infrastructure so that they are
able to render better service to the investors and issuers

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4.12.3 Objectives of SEBI
The overall objective of SEBI is to protect the interests of investors and
to promote the development of, and regulate the securities market. This may
be elaborated as follows:
1. To regulate stock exchanges and the securities industry to promote their
orderly functioning.
2. To protect the rights and interests of investors, particularly individual
investors and to guide and educate them.
3. To prevent trading malpractices and achieve a balance between self-
regulation by the securities industry and its statutory regulation.
4. To regulate and develop a code of conduct and fair practices by
intermediaries like brokers, merchant bankers etc., with a view to making them
competitive and professional.
4.12.4 Functions of SEBI
The emerging nature of the securities market in India, SEBI was
entrusted with the twin task of both regulation and development of the
securities market. It also has certain protective functions.
4.12.5 Regulatory Functions
1. Registration of brokers and sub-brokers and other players in the market.
2. Registration of collective investment schemes and Mutual Funds.
3. Regulation of stock brokers, portfolio exchanges, underwriters and
merchant bankers and the business in stock exchanges and any other securities
market.
4. Regulation of takeover bids by companies.
5. Calling for information by undertaking inspection, conducting enquiries and
audits of stock exchanges and intermediaries.
6. Levying fee or other charges for carrying out the purposes of the Act.
7. Performing and exercising such power under Securities Contracts
(Regulation) Act 1956, as may be delegated by the Government of India.

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4.12.6 Development Functions
1. Training of intermediaries of the securities market.
2. Conducting research and publishing information useful to all market
participants.
3. Undertaking measures to develop the capital markets by adapting a flexible
approach.
4.12.7 Protective Functions
1. Prohibition of fraudulent and unfair trade practices like making misleading
statements, manipulations, price rigging etc.
2. Controlling insider trading and imposing penalties for such practices.
3. Undertaking steps for investor protection.
4. Promotion of fair practices and code of conduct in securities market.
4.12.8 The Organisation Structure of SEBI
As SEBI is a statutory body there has been a considerable expansion in
the range and scope of its activities. Each of the activities of the SEBI now
demands more careful, closer, co-ordinated and intensive attention to enable it
to attain its objectives. Accordingly, SEBI has been restructured and
rationalised in tune with its expanded scope. It has decided its activities into
five operational departments. Each department is headed by an executive
director. Apart from its head office at Mumbai, SEBI has opened regional
offices in Kolkata, Chennai, and Delhi to attend to investor complaints and
liaise with the issuers, intermediaries and stock exchanges in the concerned
region (Natarajan, 2011).
The SEBI also formed two advisory committees. They are the Primary
Market Advisory Committee and the Secondary Market Advisory Committee.
These committees consist of the market players, the investors associations
recognised by the SEBI and the eminent persons in the capital market. They
provide important inputs to the SEBI‟s policies (Natarajan, 2011).

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4.13 SEBI and Capital Market
SEBI has been discharging its functions and exercising its powers in
terms of the Securities and Exchange Board of India act 1992, the Securities
contracts regulation act 1956, the depositories ACT 1996, as well as in terms
of the delegated powers under the companies Act 1956. SEBI envisions a
market, which is modern infrastructure and international best practices,
efficient, safe, investor-friendly and globally competitive. The Security
Exchange Board of India has been continuously directing its efforts to achieve
this vision in fulfilment of the twin objectives of investor protection and
Market development as mandated by the SEBI Act of 1992 (Benson Kunju,
2012).
The SEBI as a statutory body, constantly review and assess its policies
and programmes, initiating new guidelines and drafting new regulations to
nurture areas hitherto unregulated and underdeveloped and to ensure growth,
integration and consolidation of the market so that they can contribute to the
process of capital formation in the economy, or far the last few years, SEBI
has announced several reaching reforms to promote the Capital Market
development and protect investor interest. Over a period of a nearly one and a
half decade of its existence, security exchange Board of India has established
itself as a regulator of consequence (Natarajan, 2011).
SEBI and Primary Market reforms the fundamental objective of the
economic reforms undertaken by the government since 1991 to 92 was to
bring rapid and sustained Improvement in the quality of life all of the people
of India. it all with this set of objectives that the government undertook certain
economic reforms since 1991-92. One of the important aspects this entire
reform package was to increase the efficiency of the financial system and the
Securities market so that larger saving could be channelled for productive use.
Reforms in the primary Market have to be appreciated very well in the light of
the regulatory framework in regard to Market players who are involved in the
work of issue.
The Indian Capital Market has experienced a process of structural
transformation with operations conducted to excellent standards in the capital
markets of the developed countries. it was open for investment for the foreign
institutional investors (FIIs) in 1992 and Indian companies were allowed to

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raise resources aboard through Global depository receipts (GDRs)and foreign
currency convertible Bonds (FCCBs). The primary and secondary segment of
the market grew much rapidly, with greater institutionalization and wider
participation of individual investors accompanying this growth (Natarajan,
2011).
Security exchange Board of India, the principal Capital Market
regulator of established in 1992 and its primary function aids to regulate the
Capital Market and protect the interests of the investors but regulations
guidelines and notifications of SEBI are focused many things that means right
from vetting all of the prospectus to actually reaching the secondary Market
and they have ensured a fair play in the market ensuring protection of investor
interest. Reforms in the primary Securities Market over a decade or so
have been of immense help to the investors Since the primary Market provides
for floating of capital of the company, measures regarding Market
intermediaries, their eligibility criteria and simplification and streamlining of
issue procedure has been the areas of achievement from the aspect of
regulatory framework in India. Disclosure requirement of company
through it‟s a prospectus, Market players and all those who play a part in the
primary Market has been appreciated and strengthened with the growing time
and need of the hour. The focus of these measures was to enhance the label of
investor confidence and inhibit fraud in public offerings, do you tip it to this
measure, and the guidelines for disclosure and investor protection were
amended. Further the introduction of the book building, regulations of credit
rating agencies, lock in requirements and enhancing the disclosure requirement
has been the main achievements over a period of more than a decade since
security exchange Board of India took charge as a regulator of the Capital
Market in India (Natarajan, 2011).
The capital issues Control Act of 1943 repealed the office of the
controller of Capital issues and initial issue pricing of shares was decontrolled.
In 1991-92 the Finance Minister announced the repeal of the act and transfer
of powers from controller of capital issues to security exchange Board of India
from control to disclosure based regulation.

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 Important reforms in the primary Market are focused mainly on the
following.
1. Disclosure and investor protection guidelines of 2000: as per disclosure and
investor protection guidelines, all the information pertaining to and available
with an issuer is provided to the investors Based on the information available
investors can take decision whether to invest or not (Natarajan, 2011).
2. Eligibility criteria for issuers (DIP 2000): companies eligible to make an
issue can decide on their standard denomination and price of security. Some
parameters that need to be in offer documents are minimum holding by
promoters, size of public issue, issue expenses, information disclosure and
advertisement Etc.
3. Transparency: security exchange Board of India makes available all the
offer documents filled with it on its website and also through process release.
Comments are invited from the public within 21 days of filing.
4. Free pricing of securities you issuer is free to determine the level of security
price. The process of book building helps discover price and assist small
investors to take an investment decision.
5. Number of financial instruments: issuer would like to have an Optimum
capital structure that reduces cost of capital. Today the Indian Capital Market
consist almost all financial products which are available in most of the day
available Capital Market, thus the choice to both issuer and investor has
become wider.
6. Compulsory Demat: All initial public offerings will be compulsory traded in
dematerialized form. But the investors are allowed to exercise option of their
subscribing to securities in its physical or dematerialized form.
7. Book building: book building process is mandatory when the company does
not have track record for three out of preceding five years sixty present
allotments to qualified institutional buyers are mandatory under the book
building process.
8. Prohibiting insider trading in Securities or fraudulent and unfair trade
practices with the imposition of monetary penalties.
9. Foreign institutional investors are allowed to invest in Indian Capital
markets after registration with the security exchange Board of India.

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 10. Indian companies are permitted to access International Capital markets
through EURO issues.
11. The National Stock Exchanges (NSE), with Nationwide stock trading and
electronic display, clearing and settlement facilities, established several
Regional stock exchanges for a change over from floor trading to screen basic
training.
12. The practice of making preferential allotment of shares at prices
unrelated to the prevailing market prices stopped and fresh guidelines are
issued by SEBI.
13. Buy-Back of securities.
14. Companies act and Securities Exchange Board of India regulation allow
companies to buy back shares to enhance the wealth of shareholder.
15. Badla system has been abolished.
16. System of rolling settlements has been introduced.
17. The secret addiction Board of India regulations, 1999 issued for regulating
new credit rating agencies as well as introducing a code of conduct for all
credit rating agencies operating in India.
18. Security exchange Board of India has been empowered to regulate mutual
funds.
4.13.1 Objectives of SEBI:
In the securities market, the three parties which operate with vested
interests are:
(a) Issues of securities.
(b) Subscribers to securities, that is, investors; and
(c) Market intermediaries.
SEBI aims at the development and regulation of securities market in
the interests of investing public and healthy development of capital market.
The main objectives of SEBI may be spelled out as follows:
(a) To safeguard the interest of investors in securities through disclosure of such
information by companies issuing securities, that enable the investing public to
form a correct perception of risk and returns; and
(b) To regulate the work of brokers and sub-brokers in stock exchanges and to
regulate the work of bankers to an issue, underwriters, merchant bankers and
mutual funds to check all kinds of shady activities relating to securities market.

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4.13.2 Capital Market Reforms by SEBI:

SEBI has affected the following reforms in the capital market in the
last some years:
1. SEBI has issued guidelines to Stock Exchanges to make their governing
bodies more broad based. According to these guidelines, the governing body
of a stock exchange should have five elected members, not more than four
members nominated by the government or SEBI and three or fewer members
nominated as public representatives.
2. SEBI introduced the system of registration of intermediaries, such as
brokers and sub-brokers the registration is on the basis of certain eligibility
criteria such as capital adequacy.
3. SEBI has framed rules for making the relationship between client and
broker more transparent and also for segregating client and broker accounts.
4. The system of periodical inspection of stock exchanges has been introduced
by SEBI. SEBI inspected 8 stock exchanges till January 1993.
5. SEBI has advised stock exchanges to amend the listing agreement to ensure
that a listed company furnishes annual statements to them showing variations
between financial projections and project utilisation of funds made in the offer
documents and actuals. This will enable shareholders to make comparisons
between performance and promises.
6. SEBI vets the offer document to ensure that all disclosures have been made
by the company in the offer document at the time company applies for listing
of its securities (i.e., shares and debentures) to the stock exchanges.
7. The offer document of schemes to be launched by Mutual Funds is required
to be vetted by SEBI. SEBI has also specified a procedure for calculating and
declaring Net Asset Value (NAV) of each Mutual Funds scheme. This would
help investors to judge the performance of mutual funds. Mutual funds have
also been allowed to underwrite issues, as a part of their investment activity.
Regular monitoring of Mutual Funds is undertaken by SEBI to ensure
compliance with these regulations (Natarajan, 2011).
8. SEBI has brought merchant banking also under its regularity framework.
The merchant bankers are required to follow the code of conduct issued by
SEBI in respect of pricing and premium fixation of issues.

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9. The abolition of the office of Controller of Capital Issues has led to the
removal of control over price and premium of shares to be issued. However,
companies can approach capital market, only after clearance by SEBI.
10. SEBI has introduced a code of advertisement for public issues for ensuring
fair and truthful disclosures. Companies are required to disclose all material
facts and specific risk factors associated with their projects while making
public issues.
11. SEBI has issued guidelines for the allotment of new issues. According to
the guidelines, preferential allotment is to be made to the extent of 20 per cent
for the Mutual Funds, 20 per cent for the domestic financial institutions, 24 per
cent for foreign institutional investors and 10 per cent for the issuer company‟s
employees. The balance 25 per cent is to be issued to the general public.
However, 50 per cent of the minimum public offering of 25 per cent of the
total issue shall be earmarked for the small investors applying for up to 1000
shares. The unsubscribed portion in either category is fully interchangeable.
12. The practice of making preferential allotment of shares at prices unrelated
to the prevailing market price has been stopped and fresh guidelines for this
purpose have been issued by SEBI.
13. SEBI has relaxed the guidelines for the issue of bonus shares.
14. SEBI has introduced regulations governing substantial acquisition of
shares and takeovers
15. As a part of the process of establishing transparent rules for trading in
stock exchanges, the Badla System was banned by SEBI in December 1993.
16. SEBI has allowed Foreign Institutional Investors to have an access to
Indian capital market after getting registered with it. SEBI registered 286
foreign institutional investors by the January-end 1995.
17. SEBI has notified regulations for primary and secondary market
intermediaries, bringing them within its regularity framework.
18. SEBI has taken several initiatives to promote dematerialized trading in
securities through the promotion of the network of depositories. This will
eliminate the risks of bad delivery and fake or forged shares. The depositories
provide a system to record ownership details of securities in a book entry form
without physical handling of securities. Thus, dematerialized trading is
paperless trading in securities.

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19. SEBI put ban on short sale of securities on June 15, 1998 with a view to
containing volatility in share price. It prescribed additional volatility margins
(AVM) with effect from July 6, 1998. The daily price band was reduced from
10 per cent to 8 per cent. Weekly 25 per cent band was removed to introduce
graded margin system.
20. Derivatives Trading. SEBI has accepted the major recommendations of
L.C. Gupta Committee on Derivatives Trading. Under this system, derivatives
contracts would be treated as „Securities‟. The derivatives trading, as trading in
Stock indices, would provide investors a hedging instrument to manage risks
and help in improving the liquidity of secondary markets in India.
21. SEBI has exempted infrastructure firms from certain norms, while floating
a public issue. They would be exempted from making a minimum public offer
of 25 per cent of equity, minimum subscription of 90 per cent and five
shareholders per ₹ 1 lakh of offer.
22. SEBI has formulated the regulations governing buy-back of shares by
Indian companies. Buy-back has been permitted for the purpose of capital
restructuring but not for treasury operations.
23. SEBI has given freedom to companies to determine the par value of shares
issued by them thereby removing the requirement to issue shares at fixed price
value of ₹ 10 and ₹ 100.
24. In order to encourage Initial Public Offers (IPOs), the existing SEBI norm
for IPO has been relaxed by stipulating “ability to pay” in place of “actual
payment of dividend”.
4.14 Financial Events and Trends

Financial events are those events that impact, either favourably or

adversely, to indicators of economic growth and development. These
indicators shall be stock market indices, inflation rate, GDP, unemployment
ratio, etc. Broadly they can be classified under two heads based on their source
or cause, external financial events and internal financial events.

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 External Financial events occur outside the geographical boundaries of
the economy but have a far reaching impact on the domestic indicators Some
of the peculiar financial events that altered the Indian Economy over a decade
are The Great Recession, 2009, Lehman Brothers‟ bankruptcy, Attacks of 9/11
etc.

Internal Financial events occur within the geographical boundaries of

the economy and also have a drastic effect the domestic indicators some of the
famous financial events that had big impacts on the economy were the Satyam
Computers Scam, Sahara Scam, Attacks of 26/11, etc.

4.15 Financial Events and trends in Capital Market:

A capital market or a stock market is very much volatile. Any event or

activity in the world could affect the capital market, either adversely or
positively. The activity may either be company specific or related to a nation
or global. For instance, a positive step by the government towards corporate
would yield positive results or an outbreak of war would affect the market
adversely. So the capital market possesses such volatility that even a small
event could affect it. These ups and downs could occur due any reason and
some of the possible ones that could be for sure are as follows

4.15.1 Economic data release:

A nation‟s government or federal Bank of a country (RBI in case of

India) reveals financial data of the nation yearly or quarterly or monthly, such
as inflation rates, interest rates, Gross Domestic Product, budget etc. So once
such data is released market reacts to it in within a short span. For instance,
Sensex surged 95 points in the year 2012 when the inflation rate for the month
of July declined to 6.87% from 7.25%.

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4.15.2 Foreign Institutional Investor’s Approach:

An institutional investor is any investor or fund that is from or

registered in the country outside of one of in which it is investing. It may
include hedge funds, insurance companies, pension funds etc. The growing
Indian market has attracted them to a great extent in the last 10 years So their
approach may also affect the capital market. For example, if the FIIs have an
intention to reduce down their supply then the capital market would lose down
its value.

4.15.3 Rupee Movement:

The capital market of India is also affected by the changes caused in

Rupee. For example, in July 2012 when petrol prices were anticipated to be cut
the Rupee got depreciated by 21 paise which indeed affected the Sensex by
100 points adversely.

4.15.4 Company’s data releases:

After every quarter all the listed companies release their performances
and annual report after every year. It includes profit of the year, dividends
declaration, future plans, etc. A capital market also gets affected by such
reveals by the company. For instance, if the data released shows that the
company has not achieved the expectations of the investors, then its share
prices would plunge.

4.15.5 Climatic conditions:

As most of the agricultural production depends on the climate, so any

prediction related to climate would affect the market. For example, in 2009
when the nationwide rainfall fell to a deficit of 23% the Sensex fell by 1%.

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4.15.6 Government policy:

Generally the Indian Government announces the changes in existing

policies as well as new policies especially at the time of releasing budget. For
instance, in the budget of year 2018 the Indian government reduced down the
corporate taxes to 25% for companies having turnover up to ₹ 250 cr. which
lead to a rise in Sensex.

4.15.7 Terror Attacks:

The capital market of any country would definitely go down if in case

there occurred an act of terrorism such as bombing, hijack, public shoots out
etc. The most peculiar examples are the Attacks of 26/11, attacks of 9/11,
Pune‟s German Bakery Bombing etc.

4.15.8 Investor’s view point:

Even the investors have their own strategy to invest their money and
earn profits. So they go on with their strategy as per their speculations and
expectations from the market which indirectly affects the capital market. For
instance, if the investors speculate that there would be a fall in capital market
returns then they would pull out all their money today. So this would create an
imbalance in the demand and supply thereby affecting the market prices.

4.15.9 Political Factors:

The capital market is also affected by the political stability and the
changes caused in it. For example in 2014, when Narendra Modi was elected
as the Prime Minister, the capital market had risen to a good extent earning the
investors a good amount of returns.

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4.16 Financial Events and Trends

4.16.1 Year 2008:

The year 2008 was a very down for the whole world‟s capital market
due to the great Economic depression that was prevailing all over the world.
During this period of a year many financial events were seen by the whole
world such as bankruptcy of Lehman brothers, China‟s fiscal stimulus of $600
billion and many more. Even India was facing such crisis to such an extent that
it has not been able to come out of the depression effects even now. At that
time India faced a huge frauds and scams out of which the most terrifying one
was the 2G Spectrum Scam.

2G Spectrum scam was one of the biggest scams of that time in India
till that time. It involved the politicians and the government officials under the
United Progressive Alliance i.e. Congress. The then Union Government was
accused of allocating unified access service licenses at far low price to mobile
telephone companies. The Telecom minister at the time A. Raja had violated
the norms at every level as he carried the morally unacceptable activity of
selling the 2G license awards in 2008. It chose NM Rothschild &Sons for
organizing the e-auction mechanism with a deal of US$ 2.27 Billion.
Afterwards it was found that the money actually collected and mandated to be
collected had a difference of ₹ 1.7 Trillion. Thus this scam is said to be one of
the most expensive scams if inflation is to be considered in the history of
Independent India.

4.16.2 Year 2009:

The scam found in this year was the most peace shattering one in the
minds of investors and shareholders committee. Severe corporate governance
problems emerged out of the corporate wreckage. It was the Satyam Computer
Scam. The scale, magnitude, the reach and impact that the Satyam scam had
created is unparalleled in the corporate history of India. It tuned to ₹ 14,000 cr.
The Former Chairman Ramalinga Raju kept everyone in dark and fudged the
books of accounts for over a decade by inflating the profit and revenue figures
of the company by floating number of fake jobs. It led to the questioning of the

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accounting practices of the statutory auditors and corporate governance in
India. The company then faced an avalanche of law suits which resulted in the
dropping off of clients and many important persons including Raju were
arrested. After that the company was taken over by Tech Mahindra which
rebuilt the brand Mahindra Satyam.

4.16.3 Year 2010:

In the following year of such big scams there arose another scam
namely the Commonwealth Games Scandal. Even though being such a big
event, it was soaked by corruption. It is estimated that out of ₹ 70000 cr. spent
on the Games, only half the said amount was spent on Indian sportspersons.
The Central Vigilance Commission, involved in probing the alleged corruption
in various Commonwealth Games-related projects, has found discrepancies in
tenders – like payment to non-existent parties, will-full delays in execution of
contracts, over-inflated price and bungling in purchase of equipment through
tendering – and misappropriation of funds.

In the same year there emerged another scandal namely the Sahara
Group scam. It is mainly associated with the two companies of Sahara Group
that is Sahara India Real Estate Corporation Ltd. (SIRECL) and Sahara
Housing Investment Corporation Ltd. (SHICL). In September 2009 Sahara
Prime City a company under Sahara Group submitted its Draft Red Herring
Prospectus to SEBI for issuing IPO. While investigating the DHRP, SEBI
came to know that Sahara‟s other subsidiaries namely SIRECL (Sahara India
Real Estate Corporation Ltd.) and SHICL (Sahara Housing Investment
Corporation Ltd.) had raised funds in illegal manner.

SEBI got to know that these companies issued OFCD‟s (Optionally

Fully Convertible Debentures) without its permission. On investigation it was
found that the companies had raised ₹ 24,000 cr. from 2.5 cr. investors SEBI
then banned the Sahara Group and asked the company to pay back the deposits
of the investors with 15% interest. Sahara Group then challenged the decision
in the Supreme Court saying that the issue of OFCD‟s was a private
placement.

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 Whereas SEBI countered by supporting the rule which states that an
OFCD issued to more than 50 people requires the permission of SEBI. The
Supreme Court found the Sahara Group as guilty and ordered them to pay back
the deposits with 15% interest and also send the details of investors to SEBI.

4.16.4 Year 2012:

In this year the Speak Asia scam was unearthed. Ram Sumiran Paul,
the mastermind of the scam had duped over 24 lakh investors in India and
abroad. He was the founder of the various companies AD-Matrix Private
limited, seven rings international etc. abroad. With the help of Manoj Sharma
they entered the India by starting a company named Speak Asia, which was an
online survey marketing company and sold its web subscriptions for ₹ 11,000
and in return the investors had to fill survey forms for certain Multi-National
firms for promised annual payment of ₹ 52,000.They wrapped their operations
in the mid of 2011 after paying back to few investors and to attract their trust
they organized a meet in Goa. Then with the help of MIM Company,
Singapore under guidance of experts attracted international investors and
performed money laundering. Later when he came back to Delhi to sell back
his property the Police caught him

4.16.5 Year 2013:

After having a good year of corporate world, in the year 2013 there was
another scam that unearthed namely the Saradha Scam. Saradha group, an
umbrella manufacturing company was accused of cheating over millions of
investors In the State of West Bengal they started Ponzi schemes. They
collected money from many investors and cheated them all. The scam which
came into light in April 2013 was worth of ₹ 10000 cr. When SEBI unearthed
this scam it ordered the group to give back the money back within a period of
3 months. To avoid bankruptcy among the investors the State government set
up a relief fund of about ₹ 500 cr.

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4.16.6 Year 2014:

This year had been a great year for the capital market. There were
various events in this year which supported BSE SENSEX to rise by 30% and
even the Indian Rupee had a stable year overall. Most peculiar events were the
election of Narendra Modi as Prime Minister, new reforms, fall in prices of oil,
decrease of inflation rate to 3.1% etc.

In the year 2014, the most remarkable event was the collapse in the
prices of oil. Almost there was around 50% decline in the prices of oil in the
second half of the year. This was more surprising because there was no such
radical change to affect the prices to much a greater extent. It was a time
which recorded the volatility of oil prices to be the highest thereby making it
the remarkable one.

4.16.7 Year 2016:

One of the greatest moves taken by the Narendra Modi Government in

2016 was the demonetization of high value currency notes. The investors were
expecting a revival of the market but as soon as Narendra Modi announced his
Government decision to withdraw the legal tenders of ₹ 500 and ₹ 1000
currency notes. After this decision Nifty lost plunged 6% whereas Sensex shed
5%. The effect of the Demonetization has impacted the Indian Economy since
November and its effect has also prevailed all along the next year as well.

Apart from that when Britain was taking decision to stay in or exit
from European Union which had impacted the market, the then RBI Governor
Raghuram Rajan rattled everyone by saying no for seeking a second term at
the Central Bank. This decision also had a marginal impact on the capital
market as Sensex fell nearly 200 points which then recovered 241 points till
the end of the day.

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4.16.8 Year 2017:

This year saw an historic rollout of single tax regime decision taken by
the Modi Government i.e. the introduction of Goods and Service Tax. It was
implemented on 1st July 2017. The move ended more than 11 years of intense
discussions between Centre and the states and the GST council announced four
slabs of 5%, 12%, 18% and 28% rates for commodities across board. This was
because every state had its own tax laws and there was huge confusion and a
lot of chaos. Goods and services tax reform had an overall positive impact on
the capital market.

Another event that shook the IT sector and the markets in the year was
Vishal Sikka resignation from Chief Executive Officer and Managing
Director of Infosys with immediate effect citing a continuous stream of
distractions and disruptions over the recent months and quarters Sikka came
under from Narayana Murthy, who attacked several decisions taken at Infosys
besides Sikka's supposed lavish lifestyle. In the first week of December, Salil
S Parekh was chosen to be the Chief Executive Officer and Managing Director
(CEO&MD) of the company who has come to Infosys from Cap Gemini
where he was a member of the Group Executive Board.

Another stunning event in the year 2017 was the launch of Reliance Jio
which entered the telecom market started by giving free data service to its
customers and a nominal price after some time. It had shaken the whole of the
telecom industry. It has affected other players to go in losses. Now as a result
other players like Idea and Vodafone have come in a position to get merged
with each other and then compete. The Reliance Jio has affected the telecom
sector in such a way that only Jio is making profits whereas all others are
making losses.

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4.16.9 Year 2018:

The biggest fraud of this financial year was notably the Punjab
National Bank Fraud case, in which the accused Nirav Modi had raised Letters
of Credit from Punjab National Banks. It was investigated that two of the
employees of the bank were involved in the fraud which was afterwards
noticed by a new employee. Then this thing was complained to CBI apart from
ED and RBI. As of now Nirav Modi has been located in Britain. Nirav Modi is
on the Interpol's wanted list for criminal conspiracy, criminal breach of trust,
cheating and dishonesty including delivery of property, corruption, money
laundering since February 2018.

4.17 Overview of IPO

An initial public offer is the process wherein a company issues its share
for the first time in the market. It means when a company offers its shares or
part of shares to the public for the very first time so as to raise funds. If a
private company does so then it turns into a public company. Before a
company offers an IPO it must get itself listed on the stock exchange. It is the
first sale of stock issued to the company. These stocks are issued in the
primary section of the capital market. The definition of an IPO includes two
aspects namely a newly listed company issuing its shares and an existing listed
company issues freshly from the part not until issued.

4.18 Advantages for a Company:

The major advantages for a company when it conducts an IPO are as

follows:

4.18.1 Easy availability of funds:

An IPO is offered to public at large by a company through a stock

exchange. So if is in a state of sound financial position then it enables itself to
easily get the funds required from the public. This is because even the
investors would like to multiply their money and keep them in safe hands.

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4.18.2 Large and diverse investors:

An IPO gives a platform to the company as well as to the investors to

raise or invest money respectively. As offer is made to the general public there
are huge number of investors or savers who would like to invest their money
and so even the company can raise funds for its purpose by having access to
large and diverse investors

4.18.3 Decreases the cost of capital of the firm:

Through IPOs shares are issued by the company to the general public
or shareholders as the issue is of equity shares the investors become the equity
share holders of the company. So there is no compulsion for the payment of
dividend or return to them whereas in case of debt capital there is fixed rate of
interest charged. Thus it decreases the cost of capital. This process of
balancing equity and debt capital is called Trading on equity.

4.18.4 More money than other options:

A company may raise its capital through various sources such as loan
from banks or other financial institutions, issue of commercial papers, bonds
etc. As IPO helps a company to issue its equity shares in the market more
people wish to invest and huge money can be raised in comparison with the
other options available.

4.19 Disadvantages for a Company:

Some major disadvantages that a company may have or face when it

conducts an IPO are as follows:

4.19.1 Risk of un-subscription:

A company issuing an IPO has a huge risk that its shares may not be
subscribed by the general public if they feel so that the company is not much
profitable. So in this case there would be a huge effect on the company‟s
reputation and future as well. But such risks can be avoided with the help of
underwriters

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4.19.2 Loss of control

A company before giving an IPO has whole control over the

management and its activities. And once an IPO is done and the shares are
purchased there is good scope of public intervention through Board of
Directors which are appointed by the shareholders

4.19.3 Regulatory risk:

A business organization would be having an increased risk of

regulatory or legal issues when it goes for an IPO. But if the organization goes
ahead with proper efforts and through prescribed manner then there is a scope
for reduction of such risks.

4.19.4 Misuse of disclosed information:

After issuing shares in the capital market a company has to disclose its
annual reports and other necessary things to the general public. So such
information may be used by the competitors to tackle the company‟s future
steps and excel.

4.20 Major Successful IPO’s In India

4.20.1 Year 2008-09:

The year was quite satisfactory in concern with the IPO. Even though
there was great economic recession prevailing at that time period some of the
successful IPOs are as follows. Table No.4.1

Sr. Security Start date End date Issue Listing Day

No. Name Price ₹ Price ₹
1 Austral Coke & Projects 7/8/2008 13/8/2008 196.00 225.95
Ltd.
2 Resurgere Mines & 11/8/2008 13/8/2008 270.00 533.55
Minerals India Ltd.
3 NeuTek India Limited 29/7/2008 1/8/2008 192.00 199.15

4 Vishal Information 21/7/2008 24/7/2008 150.00 194.60

Technologies Ltd.

Source: As per the research study done by the researcher (Self Creation)

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 As per the information given in above table about major successful
IPO‟s in the year 2008-09, it shows Austral coke & Projects Ltd has issues
IPO for ₹ 196 & it has listing day price ₹ 225.95. Resurgere Mines & Minerals
India Ltd. has issues IPO for ₹ 270 & it has listing day price ₹ 533.55. Neu
Tek India Ltd has issues IPO for ₹ 192 & it has listing day price of ₹ 192.15.
Vishal Info Tech Ltd. has issues IPO for ₹ 270 & it has listing day price of ₹
533.55.

4.20.2 Year 2009-10:

Even though recession in Indian market was going on, still it was able
to get a total 35 IPOs in this year from which the most successful ones are as
follows: Table No.4.2

Sr. Security Start date End date Issue Listing Day

No. Name Price ₹ Price ₹
1 Oil India Limited 7/9/2009 10/9/2009 1050.00 1411.20

2 Cox and Kings (India) Ltd. 18/11/2009 20/11/2009 330.00 425.40

3 Godrej Properties Ltd. 9/12/2009 11/12/2009 490.00 537.25

4 D.B.CORP Ltd 11/12/2009 15/12/2009 212.00 265.90

5 Jubilant Food Works Ltd 18/1/2010 20/1/2010 145.00 229.1

6 A₹S Infrastructure 8/2/2010 11/2/2010 450.00 737.45

Projects Limited
7 Texmo Pipes and Products 16/2/2010 19/2/2010 90.00 137.15
Limited
8 Man Infra construction 18/2/2010 22/2/2010 252.00 349.85
Limited
9 Persistent Systems Limited 17/3/2010 19/3/2010 310.00 416.35

Source: As per the research study done by the researcher (Self Creation)
Oil India Limited has issues IPO for ₹ 1050& it has listing day price
1411.20. Cox and Kings (India) Ltd. has issues IPO for ₹ 330& it has listing
day price 425.Godrej Properties Ltd. has issues IPO for ₹ 490 & it has listing
day price 537 and so on. D.B CORP Ltd. Issues IPO for ₹ 212 and has listing
day price of 265.90.Jubiliant food works Ltd. Issues IPO for ₹ 145 and has

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listing day price of ₹ 229.1. S Infra project Ltd. Issues IPO for ₹ 450 and has
listing day price ₹ 737.45. Texmo pipes and product Ltd. Issues IPO for ₹ 90
and has listing day price of ₹ 137.15. MAN Infra construction Ltd. Issues IPO
for ₹ 252 and has listing price of ₹ 349.85. Persistent system Ltd issues IPO
for ₹ 310 and has listing day price of ₹ 416.35. Therefore we can conclude that
the listing day price of every company has increased due to increase in
demand.

4.20.3 Year 2010-11: Table No.4.3

Sr. Security Start date End date Issue Listing Day

No. Name Price ₹ Price ₹
1 SKS Micro Finance 28/7/2010 2/8/2010 985.00 1088.65
Limited
2 Bajaj Corp Limited 2/8/2010 5/8/2010 660.00 758.75

3 Career Point Infosystems 16/9/2010 21/9/2010 310.00 628.15

Limited
4 VA Tech Wabag Limited 22/9/2010 27/9/2010 1310.00 1707.95

5 Bedmutha Industries 28/9/2010 1/10/2010 102.00 179.15

Limited
6 BS Transcomm Limited 6/10/2010 13/10/2010 248.00 381.25

7 Coal India Limited 18/10/2010 21/10/2010 245.00 342.55

8 MOIL India Ltd. 26/11/2010 1/12/2010 375.00 465.05

Source: As per the research study done by the researcher (Self Creation)
Above table gives a clear picture major successful IPOs issued in the
year 2010-11. Many big companies have launched their IPOs in the same year.
SKS microfinance Ltd. Has issued IPO for ₹ 985 and has listing day price of ₹
1088.65. Bajaj Corp Ltd. Has issued IPO for ₹ 660 and has listing day price of
₹ 758.75. Career point info system Ltd. Has issued IPO for ₹ 310 and has
listing day price of ₹ 628.15. VA Tech wabag Ltd has issued IPO for ₹ 1310
and has listing day price of ₹ 1707.95. Bedmutha industries Ltd issues IPO for
₹ 102 and has listing day price of ₹ 179.15. BS Trans communication Ltd has
issued IPO for ₹ 248 and has listing day price of ₹ 381.25. COAL India LTD.
MOIL India Ltd issues IPO for ₹ 375 and has listing day price of ₹ 465.05.
Therefore we can conclude that the listing day price of every company has
increased due to increase in demand.

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4.20.4 Year 2011-12:

In this financial year the rate of successfulness of IPOs was quite less
but some of them emerged very well. This was mostly because of external
factor namely the attack at Twin Towers in 2011. As it was the main trading
point it had affected all the economies in the world.

Table No.4.4

Sr. Security Start date End date Issue Listing Day

No. Name Price ₹ Price ₹
1 Rushil Décor Limited 20/6/2011 23/6/2011 72.00 119.50

2 Inventure Growth & 20/7/2011 22/7/2011 117.00 206.75

Securities Limited
3 PG Electroplast Limited 7/9/2011 12/9/2011 210.00 415.30

4 Multi Commodity 22/2/2012 24/2/2012 1032.00 1296.70

Exchange Of India Limited

Source: As per the research study done by the researcher (Self Creation)
Above table shows the IPOs of the year 2011-12. It shows all financial
events of the year. Many big companies have launched their IPOs in the same
year. Rushil Décor Ltd. Has issued IPO for ₹ 72 and has listing day price of ₹
119.50. Inventor growth and securities Ltd. Has issued IPO for ₹ 117 and has
listing day price of ₹ 206.75. PG electroplast Ltd. Has issued IPO for ₹ 210
and has listing day price of ₹ 415.30. Multi commodity exchange of India Ltd
has issued IPO for ₹ 1032 and has listing day price of ₹ 1296.17. Therefore we
can conclude that the listing day price of every company has increased due to
increase in demand.

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4.20.5 Year 2012-13:

The year was very low in terms of IPOs as very less came into picture
and the successful ones among them are as follows:

Table No.4.5

Sr. Security Start date End date Issue Listing Day

No. Name Price ₹ Price ₹
1 Specialty Restaurants 16/5/2012 18/5/2012 150.00 159.60
Limited
2 Credit Analysis & 7/12/2012 11/12/2012 750.00 922.55
Research Limited
3 PC Jeweler Limited 10/12/2012 12/12/2012 135.00 149.20

Source: As per the research study done by the researcher (Self Creation)

Above table shows financial events of the year 2012-13. It also shows
it trends. Many big companies have launched their IPOs in the same year.
Speciality Restaurant Ltd. has issued IPO for ₹ 150and has listing day price of
₹ 159.60. Credit analysis and research Ltd. Has issued IPO for ₹ 750 and has
listing day price of ₹ 922.55. P.C Jeweller Ltd. Has issued IPO for ₹ 135 and
has listing day price of ₹ 149.20. Therefore we can conclude that the listing
day price of every company has increased due to increase in demand.

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4.20.6 Year 2013-2014:

The two consecutive years are poorly rated in IPO terms as the
numbers were very less as well as their successfulness rate. This was because
of the out breaking of scams or scandals that India had started facing in the
previous years.

Table No.4.6

Sr. Security Start date End date Issue Listing Day

No. Name Price ₹ Price ₹
1 MONTE CARLO 12/3/2014 12/5/2014 645 567.3
FASHIONS LIMITED
2 SHEMAROO 9/16/2014 9/18/2014 153 171
ENTERTAINMENT
LIMITED
3 SHARDA CROPCHEM 9/5/2014 9/9/2014 156 230.95
LIMITED
4 Snowman Logistics 8/26/2014 8/28/2014 47 79.8
Limited
5 Wonderla Holidays 4/21/2014 4/23/2014 125 157.8
Limited
6 Just Dial Limited 5/20/2013 5/22/2013 530 612.35
Source: As per the research study done by the researcher (Self Creation)
Above table shows the IPOs of the year 2013-14. It shows all financial
events of the year. Many big companies have launched their IPOs in the same
year. MONTE CARLO Ltd. has issued IPO for ₹ 645 and has listing day price
of ₹ 567.3. SHEMAROO Ltd. Has issued IPO for ₹ 153 and has listing day
price of ₹ 171. SHARDA CROPCHEM Ltd. Has issued IPO for ₹ 156 and has
listing day price of ₹ 230.95. Snowman logistics Ltd has issued IPO for ₹ 47
and has listing day price of ₹ 79.8. Wonderla holidays Ltd issues IPO for ₹ 125
and has listing day price of ₹ 157.8. Just dial Ltd has issued IPO for ₹ 530 and
has listing day price of ₹ 612.35. Therefore we can conclude that the listing
day price of Monte Carlo company has faced certain fluctuations so their
listing day price has fallen and remaining company listing price has increased
due to rise in demand.

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4.20.7 Year 2014-15:

The year was very low in terms of IPOs as very less came into
picture and the successful ones among them are as follows:

Table No.4.7

Sr. Security Start date End date Issue Listing Day

No. Name Price ₹ Price ₹
1 INOX WIND LIMITED 3/18/2015 3/20/2015 310 438.4

2 ADLABS 3/10/2015 3/17/2015 168 191.5

ENTERTAINMENT
LIMITED
3 ORTEL 3/3/2015 3/5/2015 181 162.25
COMMUNICATIONS
LIMITED

Source: As per the research study done by the researcher (Self Creation)
Above table shows the IPOs of the year 2014-15. It shows all financial
events of the year. Many big companies have launched their IPOs in the same
year. INOX wind Ltd. has issued IPO for ₹ 310 and has listing day price of ₹
438.4. ADLABS entertainment Ltd. has issued IPO for ₹ 168 and has listing
day price of ₹ 191.5. ORTEL communications Ltd. has issued IPO for ₹ 181
and has listing day price of ₹ 162.25. Therefore we can conclude that the
listing day price of every company has increased due to increase in demand.

136
4.20.8 Year 2015-16:

After two consecutive years of poor performance, in the succeeding

year there was a good increase in the number of IPO‟s thanks to the policies
that the Modi Government for the corporates. There were in total of 24 IPO‟s
in this year and some of the successful ones are:

Table No.4.8

Sr. Security Name Start Date End Date Issue Listing day
No. Price ₹ Price ₹
1 VRL Logistics Limited 15/4/2015 17/4/2015 205.00 294.10
2 Syngene International 27/7/2015 29/7/2015 250.00 310.55
Limited
3 Interglobe Aviation 27/10/2015 29/10/2015 765.00 877.25
Limited
4 Dr. LalPathlabs Limited 8/12/2015 10/12/2015 550.00 825.00
5 Alkem Laboratories 8/12/2015 10/12/2015 1050.00 1381.70
Limited
6 NarayanaHrudayala 17/12/2015 21/12/2015 250.00 336.95
Limited
7 TeamLease Service 2/2/2016 4/2/2016 850.00 1032.00
Limited

Source: As per the research study done by the researcher (Self Creation)
Above table shows the IPOs of the year 2015-16. It shows all financial
events of the year. VRL logistics Ltd issues IPO for ₹ 205 & it has listing day
price ₹ 294.10. Syngene international Ltd. has issued IPO for ₹ 250 & it has
listing day price ₹ 310.55. Interglobe aviations Ltd. have issued IPO for ₹ 765
& it has listing day price ₹ 877.55. A Dr Lal path lab Ltd. issued IPO for ₹ 550
and has listing day price of ₹ 825. Narayana Hrudayala Ltd. issued IPO for ₹
250 and has listing day price of ₹ 336.65.Team lease service Ltd. issued IPO
for ₹ 850 and has listing day price ₹ 1032. Therefore we can conclude that the
listing day price of every company has increased due to increase in demand.

137
4.20.9 Year 2016-17:

After three consecutive years of poor performance, in the

succeeding year there was a good increase in the number of IPO‟s thanks to
the policies that the Modi Government for the corporates. There were in total
of 25 IPO‟s in this year and some of the successful ones are:

Table No.4.9

Sr. Security Name Start Date End Date Issue Listing

No. Price day
₹ Price ₹
1 Thyrocare Technologies Limited 27/4/2016 29/4/2016 446.00 618.80
2 Mahangar Gas Limited 21/6/2016 23/6/2016 421 520.30
3 Quess Corp Limited 29/6/2016 1/7/2016 317.00 503.10
4 Advance Enzyme Technologies 20/7/2016 22/7/2016 896.00 1178.10
Ltd.
5 Endurance Technologies Ltd. 5/10/2016 7/10/2016 472.00 646.90
6 PNB Housing Finance Limited 25/10/2016 27/10/2016 775.00 891.15
7 Sheela Foam Limited 29/11/2016 1/12/2016 730.00 1032.00
8 BSE Limited 23/1/2017 25/1/2017 806.00 1069.20
9 Avenue Supermarts Limited 8/3/2017 10/3/2017 299.00 641.60
10 Shankara Building Products 22/3/2017 24/3/2017 460.00 632.45
Limited

Source: As per the research study done by the researcher (Self Creation)

Above table shows the IPOs of the year 2016-17. It shows all financial
events of the year. Thyro care technologies Ltd issues IPO for ₹ 446 & it has
listing day price ₹ 618. Mahanagar gas Ltd. has issues IPO for ₹ 421 & it has
listing day price ₹ 521.30. Advance enzyme technologies Ltd. has issues IPO
for ₹ 896 & it has listing day price ₹ 1178.10. Endurance technologies Ltd.
Issues IPO for ₹ .472 and has listing day price of ₹ 646.90. PNB housing
finance Ltd. Issues IPO for ₹ 775 and has listing day price of ₹ 891.15.sheela
foam Ltd. Issues IPO for ₹ 730 and has listing day price ₹ 1032. BSE Ltd
issues IPO for ₹ 806 & it has listing day price ₹ 1069.20. An Avenue
supermarts Ltd. has issues IPO for ₹ 299 & it has listing day price ₹ 641.60.
Shankara building products Ltd. has issues IPO for ₹ 460 & it has listing day

138
 price ₹ 632.45. Therefore we can conclude that the listing day price of every
company has increased due to increase in demand.

4.20.10 Year 2017-18:

After four consecutive years of poor performance, in the

succeeding year there was a good increase in the number of IPO‟s thanks to
the policies that the Modi Government for the corporates. There were in total
of 44 IPO‟s in this year and some of the successful ones are:

Table No.4.10

Sr. Security Name Start End Date Issue Listing

No. Date Price day
₹ Price ₹
1 AU Small Finance Bank Ltd 28/6/2017 30/6/2017 358 541.65
2 Cochin Shipyard Limited 1/8/2017 3/8/2017 432 528.15
3 Dixon Technologies (India) 6/9/2017 8/9/2017 1766 2891.55
Limited
4 Capacite Infra Projects Limited 13/9/2017 15/9/2017 250 342.55
5 Bandhan Bank Limited 15/03/2018 19/03/2018 375 476.85
6 Galaxy Surfactants Limited 29/01/2018 31/01/2018 1480 1700.45
7 Amber Enterprises India Ltd 17/01/2018 19/01/2018 859 1245.25
8 Apollo Micro Systems Ltd 10/01/2018 12/01/2018 275 441.75
9 Astron Paper And Board Mill 15/12/2017 20/12/2017 50 120.75
Limited
10 Mas Financial Services Ltd 06/10/2017 10/10/2017 459 654.4

11 Godrej Agrovet Limited 04/10/2017 06/10/2017 460 595.65

12 Prataap Snacks Limited 22/09/2017 26/09/2017 938 1180.65

Source: As per the research study done by the researcher (Self Creation)
Above table shows the IPOs for the year 2017-18. It shows all financial
events of this year. An IPO has issued by AU small Finance Bank Ltd on 28 th
May 2017 by issue price ₹ 358.00 and listing day price of ₹ 541. Further 12
companies have launched their IPOs in the current financial year; details of
issues price and listing day price have been given in above table.

139
4.21 Conclusion:

This chapter throws light on various financial trends and events

happened in India during last ten years. It shows how financial market of India
has changed and its significant impact on stock market. Further various initial
public offers have been studied by the researcher to know and find major
successful IPOs during the given period. While understanding financial
aspects of an economy, it is essential to understand all events occurred in
economic period, negative or positive. Major financial decisions taken by
government of India, have been covered in this chapter. Further in the next
chapter data analysis and interpretation all quantitative aspects are covered.

140