BASICS OF INDIAN CAPITAL MARKET

1.INDIAN FINANCIAL SYSTEM 2.MONEY MARKET 3.NEW ISSUE MARKET 4.SECONDERY MARKET 5. CAPITAL MARKET LEGISLATION 6.NEW CONCEPTS & NEW INSTRUMENTS 7. FINANCIAL SERVICES

1.INDIAN FINANCIAL SYSTEM



A. Indian Financial System is basically like other financial system where the surplus of one sector is transferred to the deficit sector to have the best utilization of the national finance B. the constituents of Indian financial system are RBI - SEBI IRDA Commercial Banks Financial Institutes Financial Instruments Stock Exchanges Relevant legislatures . C. the structure of Indian financial system is complex and vast . It is shown in the following slide

Chart showing Indian financial system

INDIAN FINANCIAL SYSTEM

Financial Market
Money Market Capital Market

Financial Institutions
Intermediaries
Non Others Intermediaries

Financial Services

Financial Market Regulators

Media Regulators

FUND BASED

Fee Based

P
Primary

s
Banking

secondary

IDBI IFCI NABARD ICICI ETC

Leasing Hire Purchase Bill Discounting Venture Capital Housing Finance Factoring

Merchant Banking Portfolio Management Mergers- Acquisition Consulting Corporate Reorganization

Non banking

2.MONEY MARKET


 

 

deals with short term financial assets . The investment and recovery time vary from 1 day to 365 days only . B. Features : i) Wholesale market ii) Both organized & unorganized sector iii) Participants are commercial banks Mutual Funds Financial Institutions RBI Government- CorporatesGovernment- Corporates- etc. iv) It affects interest rates Bank rates CRRCRRSLR etc.

A. Concept : It is that part of capital market which


      

C. Instruments of Money Market :

1.Call Money ( 1-15 days )-DFHI Organised unorganised 1)2.Term money ( 7- 180 days ) organised 73.Certificate of deposit ( 1m-6 m) organised 1m4.Commercial paper( 30 -365 days ) Min Inv . 5 Lakhs 5.Money market mutual fund( 1-365 days ) 16.Commercial bill ( within one year )

 

( within one year ) NB : returns interest varies RBI Demand supply play role in interest fixation D. Following Slide shows statics about Indian money market system .
7.Treasury bills

Indian money market instrument statistics

35000 30000 5000 0000 15000 10000 5000 0 9091 919 919 9 93 9394 9495 TB CB CP CD GO TM

3.NEW ISSUE MARKET



      

A. Concept : It is a part of capital market which deals with new capital inflow in the market by way of loans investments - IPO's . B. Main Means : 1. IPOs Initial Public Offerings 2.SEOs Secondary Equity Offering C .Functions : .Functions 1.Organisation 2.Underwriting 3.Distribution

      

D. Methods of floating New issue : 1.Public Issue IOP /SEO 2. Offer for Sale IPO/SEO 3.Private placement IPO /SEO 4. Rights issue -SEO 5.Bonus issue -SEO 6.ESOPS6.ESOPS-SEO


          

E. Different instruments of issue :

1.Secured premium note with detachable warrant 2.Wquity share with detachable warrant 3.Preference share with warrant 4.FCPF(Fully convertible preference share ) 5.NCD with detachable equity warrants 6.Zero interest FCD 7.FCD 8.Zeor interest PCD 9 Deep Discount bonds 10.Bonds with warrants 11.Other bonds

F. Institutes / Organisatin Associated with issue Market

1.Merchant Bankers 2. Registrar of Issue 3.Collection &Co-ordinating Bank &Co4. Underwriters 5. Brokers 6.Printers 7. Advertisers 8. Lead Managers 9. Co- Managers Co10. Others sub brokers NBFC Rating Agencies

         

etc.

G. Diagram showing new issue market position of India

14000 1 000 10000 8000 6000 4000 000 0 87- 88- 89- 90- 91- 9 - 93- 94- 95- 9688 89 90 91 9 93 94 95 96 97 no.pub .issue ( Crore )Rs

4.SECONDERY MARKET


    

A. Concept : It is that part of Capital Market where existing Shares and other instruments are bough and sold B. Major Components : 1.stock Exchanges 2. NSDL 3. CSDL 4. Investors Institutional-Corporate InstitutionalIndividual Wholesale Retail 5.Regulating Authorities

C. Primary market Vs. Secondary market




PRIMARY Market
Deals With New Issue IPOs , SEOs are main operations Less Volatile Less risky No role of Stock Exchange More organised




Secondary MARKET
Deals with existing Instruments Regular Trading More Volatile More risky Greater role of Stock Exchange Less Organised

  

  

D.Money Market Vs. Capital Market

 


MONEY MARKET Short Term

Source for WC & Govt . Borrowings Each Unit is Large Mainly wholesale market

  

 

 

CAPITAL MARKET Long Term Sources for Long term fund Each unit is small Both wholesale & retail

E. Controlling mechanism of Secondary market

1.Recognition of Stock Exchange  2.listing of Securities  3.Registration of Brokers  4.intervention of legislation



 

F. Stock exchange : It is the organised market where the existing stock are purchased and sold . G. Indian Stock Exchanges :Bombay Stock Exchang is the oldest one established in 1875 ( BSE ) followed by CSE DSE & MSE. At present there are 28 stock exchanges BSE and NSE are the most popular and modern one .


      

Middle men In stock exchange :

1.Brokers 2.Taraniwalas 3.Commission agents 4.Sub brokers 5.Authorised Clerk 6. Jobbers 7. Portfolio Consultants

5.CAPITAL MARKET LEGISLATION

         

A. Controlling Bodies : 1.SEBI 2.NSDL 3.CSDL 4.ROC 5.RBI 6.IRDA 7.MINISTRY OF FINANCE 8.STOCK EXCHANGES 9.CLB

 

  

B. Investors Protection : REMOVAL OF GRIVANE THROUGHGRIVANCE CELL ARBITRATION SPECIAL COMMITTEE DICIPLINARY ACTION




C. Investors protection tools :

1. Legal provisions : U / S 58 , 73 , 111 , of Companies Act , SEBI Act 1992 etc. 2.Credit Rating : Agencies like ICRA CRISIL _ etc. do credit rating for the instruments 3. Role of Press : Media and press indirectly protects .

6.NEW CONCEPTS & NEW INSTRUMENTS



A. OVER THE COUNTE EXCHANGE It is known as OTCE . It is organised way of dealing stock and other assets . Promoters are LIC , UTI , SBI , CANBANK etc. In 1996 only 65 members but by 2003 it is above 200.

B. NATIONAL STOCK EXCHANGE :

C. DEPOSITORY SYSTEM

D. MUTUAL FUND

E. BOOK BUILDING:

F. DERIVATIVES :

G.ON LINE STOCK TRADING :

H. BULL BEAR

STAG- LAME DUCK STAG-

I. GREEN SHOE OPTION

7.FINANCIAL SERVICES


Concept : Financial services means the supporting activities which is done to aid the finance market , institutions and investors . CLASSIFICATION: A ) FUND BASED NBFC ,AMC,HP&LEASING, BILL DISCOUNTING, HOUSING FINANCE , INSURANCE , FACTORING , VENTURE CAPITAL .B) FEE BASED- MERCHANT BASEDBANKING , MERGERS, STOCK BROAKING , CREDIT RATING

The important services are :

     

A. Merchant Banking B. Credit rating C. Underwriting D. Broking E. Portfolio Consulting . F. OTHERS

A .Merchant Banking

B. Credit rating

C.Underwriting

D. Broking

E. Portfolio Consulting

F. OTHER SERVICES
      

1.HOUSING FINANACE 2.DEPOSITORY CSDL / NSDL 3.AMC MUTUAL FUNDS 4.CREDIT CARDS 5.DEBIT CARDS 6.SMART CARDS 7.INSURANCE LIFE & GENERAL / GOVT. &PRIVATE

8.OTHER CONTEMPORARY TOPICS IN CAPITAL MARKET

      

1.GREEN SHOE OPTIONS 2.RED HEARING PROSPECTUS 3.IOP PRICE BAND FLOOR PRICE 4.EQUITY BUY BACK U/S 77A , 5.ESOP SCHEME 6. SWAPA INTEREST FOREX 7.REPOS