Capital Market in India

Growth of Market
Before 1992
Primary Market Fully Regulated by CCI

Post 1992
SEBI replaced CCI as Market Regulator

Issue Price was determined

by CCI Absence of sufficient number

Free Pricing of Shares

All Intermediaries were brought under SEBI

of Intermediaries
No Regulation for Intermediaries

regulations
New Disclosure Norms introduced

Instruments
Equity Dominated Market Corporate Debentures Public Sector Bonds G-Sec. traded on Stock Exchanges Hybrid Instruments:
Zero Coupon Bonds Floating Rate Bonds Secured Premium Notes Non-convertible Debentures with Warrants

Market Segments
Primary Market: -Direct subscription by investors. Secondary Market -Provides liquidity to investors and enables new investors to buy shares at market related rates.

Primary Market
IPO Mechanism-through Prospectus
Direct Subscription by Investors

90% Subscription (Condition Applies)

Book-building Route Available Merchant Bankers appointed to act as Lead
Manager.

Primary Market
Rights Issue Bonus Issue Private Placement Promoters Contribution (20%) Firm Allotment (10%) Minimum Public Offer (25%) Creation of Deposit Receipts (ADR/GDR)

Secondary Market
Liquidity through Stock Exchanges
Stock Exchanges
BSE
NSE OTCEI

ISE
19 Regional Stock Exchanges

Networking
VSAT connectivity between BSE and other

broking outlets
Connectivity between NSE and other broking

outlets
Connectivity between Regional Stock Exchanges,

NSE & BSE

ISE to oversee the entire operations

NORTHER N REGION

WESTER N REGION

ISE
EASTERN REGION

SOUTHERN REGION

Settlement of Trade
Weekly Settlement before July,2001 Rolling Settlement from 2nd July,2001 on T+5 basis T+3 Rolling Settlement from April, 2002 T+2 Rolling Settlement April, 2003 T+1 Rolling Settlement by 2004

Why Primary Market is not active now?

Very Few Companies FI, Banks, Few

Pharma Companies come out with new issues

Corporate Borrowing is Cheaper
Domestic borrowing at PLR related rate ECB at LIBOR related rate

Increased FDI cap in many industries

Depositories
Depositories Act, 1996 passed

National Securities Depository Limited (NSDL)

Central Depository Services Limited (CDSL) was set

up by 1998 (promoted by BSE)

380 Depository Participants (DPs) throughout the

country
99.9% of the trades are settled in dematerialized

form in T+3 settlement

Depository Mechanism
NSDL CDSL

DP

DP

DP

DP

DP

DP

DP

DP

Depository Participants are Banks, NBFCs, Stock Broking Firms, Stock Brokers, SHCIL, etc.

Advantages of Dmat Account

Quicker settlement since NSE/BSE are connected

online to NSDL/CDSL
No damage or bad delivery of securities No loss or theft of securities No stamp duty on securities transfer

Foreign Institutional Investors

FIIs are foreign based Mutual Funds, Pension

Funds, AMC, Nominee Companies, etc.

investment permitted since 1993 FII Investment permitted in Equity, Debentures,

Government Securities, Commercial Papers,

Treasury Bills, etc.

Foreign Institutional Investors

FII investment permitted upto the FDI

ceiling for each industry

Total FII investment as on 2.1.2003- US$

15,308 million (Rs. 60,000 Crores)

ADRs and GDRs

New route for Corporate to mobilize

capital from international markets

Introduced from 1993
Issues through Depository Mechanism

ADRs and GDRs

Domestic Custodian Bank

Overseas Depository Bank

Two way Fungibility

Risk & Return to Investors (Debt Securities)

Low Risk and Assured Return Secondary

Market

Liquidity depends on

Interest Rate Movement

Yield on Securities falls for buyers when

Interest Rate declines

Risk & Return to Investors (Equity)

High risk category of investment
Dividend is subject to good profit Probability of capital gain depends on various

factors

Performance of Company Mergers and Acquisitions Insiders Trading (prohibited)

Indicators of Capital Market Growth

Movement in Indices

Market P/E Ratio

More Players in the Market Turnover of Trade and Market