Capital Market and its significance

By Deepika S R GRG School of Management Studies Coimbatore

Identify this Personality

"legendary

Investor

The dumbest reason in the world to buy a stock is because it's going up

Financial system
y Financial system is the system that allows the transfer of

money between savers (investors) and borrowers.

y Financial systems are crucial to the allocation of resources in a

modern economy.
y They channel household savings to the corporate sector and

allocate investment funds among firms; they enable households and firms to share risks.

Capital Market

A capital market is a market for securities (Debt or equity), where business enterprises and governments can raise long-term funds.

The nature of capital market

It has two segments It deals in long-term securities It creates dispersion in business ownership It helps in capital formation It helps in creating liquidity

    

Primary and Secondary Market

y The primary market is the market where the

securities are sold for the first time. In a primary issue, the securities are issued by the company directly to investors.
y In secondary market investors purchase

securities or assets from other investors, rather than from issuing companies themselves. The national exchanges - such as the BSE and NSE are secondary markets.

uiz time

y How many stock exchanges are there in India? y By what name is the building phiroze jeejeebhoy

towers better known as?

Clue.

The three Is of the capital market

 Issuers  Intermediaries  Investors y Individual Investors y Corporate Investors; DIIs y Foreign Venture Capital Investors y FIIs

There are two main types of issuers namely

 Corporate's issue both debt and equity securities  Government issue debt securities.

Intermediaries
y Stock exchanges y Brokers y Depositories, depository participants y Merchant bankers y Bankers to the issue y Registrars to the issue y Underwriters y Portfolio managers y Debentures trustees y Credit rating agencies

CDSL & NSDL

y National Securities Depository Limited (NSDL) and Central Depository

Services Limited (CDSL) are depositories.

y Depositories hold various securities like shares in electronic form. y A DP (Depository Participant) is like an agent of these

depositories.
y Investors open their account with depositories via depository

participants. They don't deal directly with the depositories.

y It is mandatory for all listed companies to have their securities admitted

for dematerialisation with both the depositories viz CDSL & NSDL.

Demat & Trading Account

y Demat Account : Account where your Shares are stored in

electronic form .
y Trading Account : An account which is used to place orders for

Buying and Selling of shares .

y when you buy shares, amount is debited from your trading

Account and shares are stored in your Demat account .

y When you Sell shares, amount is credited to your trading

account and shares are taken away from your Demat Account and sold in the stock market.

Why open a Demat account?

y Auto Credit - Shares arising out of bonus, split, consolidation, merger , IPO are

automatically credited into the Demat account of the investor.

y Lower Charges - Transactions involving physical securities are costlier than those

involving dematerialised securities (just like the transactions through a bank teller are costlier than ATM transactions).
y Quick Transfer- Securities can be transferred at an instruction immediately. y Elimination of Risks - Risks like forgery, thefts, bad delivery, delays in transfer etc,

associated with physical certificates are eliminated.

y Convenience-Any change in address or bank account details can be electronically

intimated to all companies in which investor holds any securities, without having to inform each of them separately.

Reforms in Indian Securities Markets

y Creation of Market Regulator - SEBI was established in 1992, with

the aim of protecting the interests of investors, promoting and regulating the securities market.
y Screen Based Trading - Open out-cry system replaced by on-line

fully automated screen based trading system (SBTS)

y Reduction of Trading Cycle - settlement period was reduced

progressively from T+5 to T+3 days. From April 2003 onwards, T+2 days settlement cycle is being followed.

Reforms in Indian Securities Markets

y Equity Derivatives Trading To assist market participants in

managing risks better through hedging, speculation and arbitrage, the market presently offers index futures, index options, single stock futures and single stock options.
y Clearing Corporation - National Securities Clearing Corporation

Ltd. (NSCCL), commenced its operations in April 1996.

y Globalisation - Indian companies have been permitted to raise

resources overseas through issue of ADRs, GDRs and FCCBs.

y FIIs have been permitted to invest in all types of securities,

including government securities and tap the domestic market.

Reforms in Indian Securities Markets

y Direct Market Access - DMA allows brokers to offer their respective

clients, direct access to the Exchange trading system through the brokers infrastructure without manual intervention by the broker
y Launch of Securities Lending & Borrowing Scheme - Allows

market participants to take short positions effectively with less cost.

y Launch of Currency Futures y ASBA: Application Supported by Blocked Amount y Launch of Interest Rate Futures y Launch of mobile trading for all investors

Worlds largest stock exchanges and their market value

 New York Stock Exchange (Dow Jones)  Tokyo Stock Exchange(NIKKEI)  American stock exchange (NASDAQ)  London Stock Exchange (FTSE)  Shanghai Stock Exchange  Hong Kong Stock Exchange (Hang Seng)  Toronto Stock Exchange (TSX)  Frankfurt Stock Exchange (DAX)  Bombay Stock Exchange (Sensex)  National Stock Exchange of India(NIFTY)

: $14.2 trillion : $3.32 trillion : $4.68 trillion : $3.26 trillion : $2.35 trillion : $2.25 trillion : $1.912 trillion : $1.18 trillion : $1.07 trillion :$0.98 trillion

Stock markets & the world economy

 The performance of all the worlds stock markets is directly

responsible for a significant amount of the worlds economic condition whether it be healthy, ailing, or trending sideways.
 In general, stock market growth is a leading indicator that the

state of an economy is flourishing, while declining trends indicate of economic slowdown.

 Commentators suggest that stock markets often predict what

will happen in the economy of that country around six months later.

Investments: What u cant believe, But true

If one would have bought 100 Wipro shares of Face Value Rs 100 in 1980.
1981 , 1 : 1 bonus = 200 shares 1985 , 1 : 1 bonus = 400 1986 split to Rs 10 = 4000 1987 , 1 : 1 bonus = 8000 1989 , 1 : 1 bonus = 16000 1992 , 1 : 1 bonus = 32000 1995 , 1 : 1 bonus = 64000 1997 , 2 : 1 bonus = 192000 1999 split to Rs 2 = 9,60,000 2004 , 2 : 1 bonus = 28,80,000 2005 , 1 ; 1 bonus = 57,60,000 2010 3 : 2 bonus = 96,00,000

Todays rate is Rs. 450 Your portfolio would have been Rs. 432 crore

Current year dividend Rs. 4 per share. i. e: 4*96,00,000 = 3.84 crore

Advantages of investing in shares

y Inflation rate is higher than commercial banks interest rate

but lower than equity price appreciation.

y You are protected from the eyes of the public. Nobody knows

your worth except you tell him/her. In other investments, people can easily look at the assets of the business or your property (real estate) and come up with approximate worth of it.
y The rate of growth is far beyond the bank interest rate. y

Dividend -This is cash reward given to share holders as part of the profit made by the company at the end of each financial year.

y Bonus issues -This is free shares given to existing shareholders.

How spot market is different from future market?

Particulars Spot market Future market No. of shares Market value of Tata motors on 14/02/12 Investment MV of Tata motors on 15/02/12 ROI 9.6% 60% Rs. 5,20,000 Rs. 285 Rs. 82,000 Rs. 285 2000 Rs. 260 2000 Rs.260

Conclusion
 Exposure to stocks is only a meagre 1.25 per cent as against 35-

40 per cent in developed economies. This is one of the lowest in the world.
 while India has over 75 crore mobile phone connections, the

country has less than 1.5 crore depository accounts.

 India has got the highest percentage of savings in the world

with about 36 per cent. About 64 per cent of the savings in India goes to banks in fixed deposits and 6 per cent to the capital markets.

 young person, by virtue of youth and the prospects of a

bright career ahead, has a higher risk-taking capacity, and so can afford to invest larger amounts in assets that carry higher risk but much better returns.
 Compared with the returns from various assets like bank

deposits and company deposits, over long terms, equities have consistently delivered higher returns.

uiz time

What is the current value of Sensex and Nifty?

How many of you are ready to invest in stock market?

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y

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