Capital Market

Presented By
Helly Desai
– 06
Vishal Kothari –
09
Sweety Desai –
15
Suchit Shah –
 ROADMAP
• Introduction to Capital Market

• Primary Market

• Secondary Market

• Financial Terminology

• Derivatives

• Capital Market Trend

 DEVELOPMENT OF CAPITAL
MARKET
 Established in 18th Century

 19th Century, trading was unorganized

 Bombay Stock Exchange was recognized in May 1927

 In 1990, Liberalisation and globalization introduced

 Major scams in 1990

 SEBI
 Introduction

 Objectives

 Functions

 Power

 Legal FrameWork
 OBJECTIVES

 Tries to develop the securities market

 Promotes Investors Interest

 Makes rules and regulations for the securities

market.
 FUNCTIONS
 Regulates Capital Market

 Checks Trading of securities

 Checks the malpractices in securities market

 Enhances investor's knowledge on market

 Regulates the stockbrokers and sub-brokers

 Promotes Research and Investigation

 POWER
 Discovery, Production & Inspection of any books of account,
registers & other documents

 To conduct inquiries & order audit of stock exchanges

 Levy penalties, fees & other charges

 Issue orders/directions in the interest of investors

 Hear appeals

 Suspend registration of any intermediary

 LEGAL FRAMEWORK

 Prohibition Against Market Manipulation

 Prohibition On Unfair Trade practice relating to

securities
 Central Listing Authority (CLA)
• Introduction

• Purpose

• Need

• Benefits
STOCK EXCHANGES IN INDIA

 23 stock exchanges in India

- 2 national level stock exchanges

- 21 Regional Stock Exchanges

REGIONAL STOCK EXCHANGES IN INDIA
Ahmedabad Stock Exchange Madhya Pradesh Stock Exchange

Bangalore Stock Exchange Madras Stock Exchange

Bhubaneshwar Stock Exchange Magadh Stock Exchange

Calcutta Stock Exchange Mangalore Stock Exchange

Cochin Stock Exchange Meerut Stock Exchange

Coimbatore Stock Exchange OTC Exchange Of India

Delhi Stock Exchange Pune Stock Exchange

Guwahati Stock Exchange Saurashtra Kutch Stock Exchange

Hyderabad Stock Exchange Uttar Pradesh Stock Exchange

Jaipur Stock Exchange Vadodara Stock Exchange

Ludhiana Stock Exchange

 NATIONAL LEVEL STOCK
EXCHANGES

 National Stock Exchange (NSE)

 Bombay Stock Exchange (BSE)

 National
Stock exchange
 In April 1993, it was recognized as a stock exchange
under the Securities Contracts (Regulation) Act,
1956.

 Largest stock exchange in India

 Mutually-owned by a set of leading Financial

Institutions, Banks, Insurance Companies and other
Financial Intermediaries in India
 National
Stock exchange
 2 Foreign Investors NYSE Euronext and Goldman
Sachs

 Promoted by leading Financial institutions at the

behest of the Government of India
 Established in 1875

 Called the "BSE 30", is a widely used market index in India

and Asia

 Plays a pivotal role in the development of the country's capital

market.

 Managed professionally by Board of Directors.

 Provides an efficient market for the trading in equity, debt

instruments and derivatives.
 COMMODITY EXCHANGE
 Commodity :
It is a product having commercial value which can be
produced, bought, sold and used/consumed.Basically
products of primary sector of the economy.

 Commodity Futures :
Contracts to buy or sell a commodity at a specific price and
on a specific delivery date, allows to lock into a fixed price
& protect farmer & companies from a steep movement.
Ex. - Cotton trading Commodity futures contracts have to
specify the quality.
CLASSIFICATION OF
COMMODITIES
 COMMODITIES EXCHANGE IN
INDIA

 Multi Commodity Exchange (MCX)

 National Multi-Commodity Exchange of India Ltd

(NMCE)

 National Commodity and Derivatives Exchange

(NCDEX)
 DEMAT ACCOUNT

 Safe and convenient means of holding securities

 Opening Process

 Benefits
 Bank Account Vs Demat Account
Basis Of
S. No. Bank Account Demat Account
Differentiation

Form of
1. Funds Securities
Holdings/Deposits

2. Used for Safekeeping of money Safekeeping of shares

Transfer of money (without Transfer of shares (without

3. Facilitates
actually handling money) actually handling shares)

4. Where to open A bank of choice A DP of choice (can be a bank)

Requirement of Mandatory (effective from April

5. Mandatory
PAN Number 01, 2006)

Interest accrual Interest income is subject to the No interest accruals on securities

6.
on holdings applicable rate of interest held in demat account

Minimum balance AQB* maintainance is specified

7. No such requirement
requirement for certain bank accounts

*AQB - Average Quarterly Balance

 DEPOSITORY PARTICIPANTS

 2 Agency in Depositories:

3. National Securities Depository Limited (NSDL)

5. Central Depository Service (India) Limited (CDSL)

Jinal Vira - 54
 PRIMARY MARKET

 What is primary market?

 Features of primary market

 Methods of issuing securities in the primary

market
 INITIAL PUBLIC OFFER(IPO)

What is IPO?

Reasons for going public

- Raising funds to finance capital
expenditure
- Financing working capital
- Debt refinancing
- Exit route for existing investors
INITIAL PUBLIC OFFER(IPO)
(contd)…..
 MANAGEMENT OF IPO
 Eligibility norms for an IPO

 Pre – issue obligations

– MOU
– Inter se Allocation of Responsibilities
– Due Diligence Certificate
– Undertaking
– List of Promoter’s Group

Appointment of Investment Bankers & Other

Intermediaries
 PARTIES TO THE ISSUE

 Registrar
 Bankers
 Debenture trustees
 Underwriters
 Brokers
 Advertising agencies
 Printers
 Auditor
 Legal advisor
Registrar to the issue
– Registration with SEBI is mandatory & it provides
administrative support to the issue process
– Functions

Bankers
– Each Banker to the issue designates one particular
branch as the Controlling Branch
– Functions
Debenture trustees
– They have to obtain a Certificate of Registration
from SEBI
– Functions

Underwriters to the issue

– Underwriters are exposed to the risk of under
subscription
– Commission is payable on the issue price of the
security i.e. face value + premium
 Brokers to the issue
– Any member of any recognized stock exchange
can be appointed as Broker
– Functions

 Advertising agencies
– The role of advertising agency is of crucial
importance in determining the fate of the issue
– Functions
 Printers of issue stationery
– The primary criteria in selection of the printer are
the cost factor & the quality of service
– Functions

 Auditor
– Regular auditor of the company acts as the Auditor
for the purpose of public offering
– Functions
 Legal advisor to the issue
– Appointed to ensure compliance of all legal &
regulatory provisions
– Functions
 PRE – ISSUE ACTIVITIES
Registration of the Offer Document

Mandatory collection centre

Marketing of the issue

– Timing of the issue
– Retail distribution
– Reservation in the issue
– Advertising campaign
 Timing of the issue
 The timing of the issue is important to ensure
success of the issue
 Prevailing market sentiments

 Retail distribution
 It is done through a network of brokers.
 It involves geographical area where the Lead
manager expects the subscription flows.
 Reservation in the issue
 A portion of the issue can be reserved for specific class
of investors
 Mutual Funds, Banks, Foreign Institutional Investors,
etc.

 Advertising campaign
 It provides wide publicity to the issue
 The company decides the size of advertising budget
 PRE – ISSUE ACTIVITIES (Contd….)

Book – building
– Meaning
– Intermediaries involved in this process
– Difference between IPO & Book – Building

Implications & consequences of-

– Underpricing
– Overpricing
 POST – ISSUE ACTIVITIES

 Basis of allotment

 Reservation for Small Investors

 Dealing with undersubscription

Helly Desai - 06
 SECONDARY MARKET

 Stock Exchanges provide a platform to trade

 The securities are traded, cleared and settled

SOFTWARE USED IN TRADING
 NEAT (National Exchange for Automated Trading
NEAT system).

 SEBI has also allowed trading through wireless

medium or Wireless Application Protocol(WAP)
platform

 ODIN software is also used by some brokers for

trading .
 INDICES
 Index:
Measures the change in the prices of the underlying
asset with respect to the prices in the base year

 Major Indices :
 Sensex
 Nifty
 SENSEX
 In 1986 BSE came out with Stock Index-SENSEX

 It consists of 30 largest stock in the market

 Some of the companies

Reliance, Bhel, Infosys, DLF
 BSE 100
 Formerly known as BSE NATIONAL INDEX

 Launched in 1989

 It consists of 100 companies

 Some of them are :-

Cipla, Gail India, ICICI BANK LTD, HP Corp ltd
 BSE 200
 Launched in 1994

 It comprises of 200 companies

 Based on current market specialisation,market

performance of the companies ,volumes of company
turnover

 Some of the companies

Adlabs films, Bank of India, L & T Ltd
 BSE 500
 Launched in 2005

 It comprises of 500 companies ,covering the entire

market

 Some of the companies are:-

Hindalco, M & M, Nestle Ltd
BSE MIDCAP AND SMALL CAP

 Mid Cap - $2 billion to $10 billion

 Small Cap - $300 million to $2 billion

 Some of the companies are:-

Andhra Bank,Godrej ltd,Nirma Ltd
 BSE TECK
 BSE TECK index is composed of 21 quality stocks
from the IT, Media and Telecom sectors.

 Some of them are :-

Dish TV,HT media,Wipro Ltd
 BSE PSU
 Launched in 2004

 It consists of major Public Sector Undertakings listed

on BSE

 Some of the companies are:-

BHEL, Bank of India, Shipping corp
 BSE BANKEX
 Launched to track the performance of leading banks

 It comprises of 12 major banks

 Some of them are :-

Allahabad Bank, Hdfc bank,SBI
 BSE AUTO
 Launched in 2004

 Some of the companies are:-

M&M,Tata Motors, Appolo Tyres
 BSE CONSUMER GOODS

 It is a part of sectoral indices

 Some of the companies are:-

Siemens Ltd, Bharat Bijli
 BSE FMCG INDEX
 Eatables, soft drinks, and cleaning materials falls in
this category

 Scrips having a minimum of 90% trading frequency

in preceding six months are eligible to be included in
the FMCG Index.

 Some of them:-
Britannia ltd,Dabur Ltd,Marico Ltd
 BSE HEALTH CARE

 Tracks the performance of health care centre

 Some of the companies :-

Cipla, Phizer ltd, Ranbaxy laboratories
 BSE METAL INDEX

 Launched in 2004

 Some of the companies are:-

Jindal Steel,Sesa goa, Tata Steel
 BSE OIL & GAS INDEX

 Launched in 2004

 Some of the companies:-

Bharat petroleum, Reliance petro,HP corp Ltd
 NIFTY
Launch of S&P CNX Nifty in April 1996

Owned & Managed by IISL (India Index

Services and Products Ltd.)

It consists of 50 companies

Companies – Bharti Airtel, BHEL, RPL,

Rcom, RIL
 CNX Nifty Junior
Launch of CNX Nifty Junior in Dec., 1996

It consists of 100 most liquid stocks

Companies – Andhra Bank, GMR

Infrastructure, Patni, Vijaya Bank
 GROUPS
 Classification of scripts in Equity Segments as
A, B, S , T ,Z

 Eligibility Criteria for A group:

Scripts should be listed for 3 months

 Eligibility Criteria for Z group:

Scripts which fail to comply with its listing
requirements
CLASSIFICATION OF SCRIPS IN
GROUPS
GROUPS SCRIPS

A RIL, HDFC Bank

B Zee News, TVS Motors

S Bajaj Elec., India Gelatin

T Indiabull Retail

Z Bagadia Colour, Anil Modi Oil

CLEARING AND SETTLEMENT
 Introduction of T+2 Rolling settlement

SR.NO DAY TIME DESCRIPTON OF ACTIVITY

1 T TRADE DAY

2 BY Custodians conform the trades. However,

T+1 11.00AM there is a facility for late confirmations
BY 1.30 Process and download obligation files to
PM brokers/custodians
3 T+2 By 11.00 Pay-in of securities and funds
am
By 1.30 pm Pay-out of securities and funds
 CONTINUE…
Schedule for stock brokers in T+2 Rolling
Settlements

SR.NO DAY TIME DESCRIPTON OF ACTIVITY

1 T TRADE DAY

2 Until 10.30 Accept pay-in instructions from investors into

T+2 am pool account
By 10.30 am Submit final pay-in files to the depository and
the clearing bank.
Suchit Shah - 27
 RIGHTS ISSUE
 Privilege To Existing Shareholders

 New Shares At Specific Time And At Specific Cost

 Eg. Avon Ltd

 SPLIT SHARE
 Dividing Existing Shares

 Total Market Cap remains same

 Gives Scope For Small Investors

 Management Creates Confidence For Future Prospects

 Eg. Unitech Ltd

 BONUS

 Free Share Given To Existing Shareholders

 EPS Reduces

 Eg. Unitech Ltd

 BUYBACK
 Firm Buybacks Its Own Share From Market

 EPS Increases

 Eg. Reliance Infra

 DEBENTURE

 A Unsecured Debt

 Based On Credit Worthiness

 No Collateral
 TYPES OF DENEBTURE

Non Convertible Debentures : TATA Capital

Partly Convertible Debentures

Fully Convertible Debentures

 WARRANTS
A Right To Purchase Security
A Sweetener
Warrants Vs Call Option

Eg.HCL Ltd
 PARTICIPATORY NOTES
 Issued By FII To Investors, But Are Not Registered

 Identity Is Hidden

 25-30% Of Foreign Investment Is Through P-Notes

 Problems With The Instrument

 BONDS
 A Debt Security

 A Source For Long - Term Finance

 Bonds Vs Stocks

 Terms: Principal, Issue Price, Maturity, Coupon

Rate, Covenants
 TYPES OF BONDS
 Fixed Rate Bond

 Zero Coupon Bond

 Deep Discount Bonds:IDBI

 Secured Premium Notes:TISCO

 Floating Rate Bonds

 FCCB

 Bond Issued In Foreign Currency

 Coupon Rate are Fixed

 IMPACT AS ON DECEMBER
 Shares Values Have Reduced Drastically

 Liability To Foreign Investors Have Accrued

 Options To Overcome This Problem:

 Dilute Promoters Holding
 Redeem Bonds
SNAPSHOT OF VARIOUS
COMAPNIES
 ADR AND GDR
 Trading Of Home Market Stocks In US Market

 Bank Certificate Is Issued In More Than One Country

 Approx. 81 Odd Companies Have Used This Route

 Total Cumulative Mobilization Of Over 40,000 Cr

 Many Restrictions In Early 90’s

INDIAN COMPANIES IN US
MARKET
Mihir Vora - 55
 DERIVATIVES

 Derivative is a product whose value is derived from

the value of the underlying asset.

 Underlying asset can be equity, forex, commodity, or

any other asset.
 FEATURES

 Centralization of Trading

 No counter party risk

 Standardization of contracts
 TYPES OF DERIVATIVES
 Futures

 Options

 Swap
 FUTURES

 Agreement between two parties to exchange an asset

at a certain date in future at a certain strike price.

 It is a standardized forward contract that is traded on

an exchange
 EXAMPLE ON FUTURES
On 15th Jan. : On 15th Jan. :
Buy RPL Futures Bought RPL Futures
Contracts : 100 (100 shares/contract) Contracts : 100 (100 shares/contract)
Strike Price : Rs. 80 Strike Price : Rs. 80
Expirty Date : 29/1/09
Expirty Date : 29/1/09
Margin : 30% of value
Margin : 30% of value
On 16th Jan. : Spot Price : Rs. 75
On 29th Jan. :
On 17th Jan, : Spot Price : Rs 82
Spot Price : Rs. 94
On 18th Jan. : Spot Price : Rs 90
Square Off the Position
On 19th Jan. : Spot Price : Rs 100
Buy at Rs. 80 and Sell at Rs. 94
On 29 Jan. : Spot Price : Rs 94
th

Profit of Rs. 140000/-

 FEATURES
 Different lot size for shares

 Minimum investment

 MTM margining system

 Unlimited risk, unlimited profit

 FUTURES
• Hiren is bearish about ABC and sells 20 one-month
ABC futures contracts at Rs. 304,000 (each contract
consists of 100 shares). On the expiry date, ABC
closes at Rs. 134. He makes a

• Profit / Loss of Rs. 36000

______
 OPTIONS
 Gives the buyer the right not the obligation to buy or sell a
specified underlying asset at a set price on or before a
specified date

 Expiration Date
– Last date for exercising the option or the date on which
option expires.

 Exercise Date
– Date on which the option is actually exercised
 FEATURES
 Types
- Call option
- Put option

 Low liquidity

 Limited risk, Unlimited profit

 CALL OPTION

 Buyer – Right to buy

 Seller – Obligation to sell

 Bullish / Bearish
 PUT OPTION

 Buyer – Right to sell

 Seller – Obligation to buy

 Bearish / Bullish
 STRIKE PRICES
 ITM (In The Money) – Profitable

 ATM (At The Money) – No Profit No Loss

 OTM (Out of The Money) - Loss

 EXAMPLE-1
• An investor Buys one month Nifty 4160 Call
Option for a Premium of Rs. 10

• Spot Value of Nifty = 4180

• Option ITM / ATM / OTM ??????

 EXAMPLE-2
• An investor Buys one month Nifty 4160 Call
Option for a Premium of Rs. 10

• Spot Value of Nifty = 4170

• Option ITM / ATM / OTM ??????

 EXAMPLE-3
• An investor Buys one month Nifty 4160 Call
Option for a Premium of Rs. 10

• Spot Value of Nifty = 4150

• Option ITM / ATM / OTM ??????

 Example on Call Options
I Bought I Bought
100 Nifty Call ( 2 contracts) 100 Nifty Call ( 2 Contracts)
Strike Price 4060 Strike Price 4060
Premium Rs. 60 Premium Rs. 60
on 15-Jan on 15-Jan
Index closed Index closed
at 4160 at 3960
on 25-Jan on 25-Jan
Payoff = ?? Payoff = ??

Profit of Rs. 4000/- Loss of Rs. 6000/-

 Example on Put Options
I Bought I Bought
100 Nifty Put ( 2 contracts) 100 Nifty Put ( 2 Contracts)
Strike Price 4060 Strike Price 4060
Premium Rs. 60 Premium Rs. 60
on 15-Jan on 15-Jan
Index closed Index closed
at 4160 at 3960
on 25-Jan on 25-Jan
Payoff = ?? Payoff = ??
Loss of Rs. 6000/- Profit of Rs. 4000/-
APPLICATION OF OPTIONS

Options

Call Put
Option Option

Buy Sell Buy Sell

When When When When

Bullish Bearish Bearish Bullish
 SWAP
• Plain-Vanilla Swap

• Exchange of Fixed v/s. Floating Rate

• Types of Swaps :
Interest Rate, Currency, Credit Default Swap
Vishal Kothari - 09
 WHY FII ARE ATTRACTED TO
INDIA??

 GDP of trillion dollar

 Growth rate of 8–9%
 Huge man power, cost effectiveness
 Fast emerging middle – class
 Rate of return on investment
 Cheaper valuation
 Investment to GDP ratio = 35-40%
LIBERIZATION OF FDI CAP
SECTORS %
Telecom 74
Insurance 49
DTH & Cable T.V. 74
Aviation 100
Defence 26
Oil refinaries 49
Courier 49
Titanium bearing minerals 100
QUARTER RESULTS
JOURNEY FROM 03 -07
IPO
GDP
IIP
 MERGERS & AQUISITION
2007 2007
 $ 65bn transactions Hindalco Novelis
(JAN – SEPT 2007) TATA Steel Corus
Dr. Reddy Betapharm

 102 countries Ranbaxy Terapia

Suzlon Hansen
Videocon Daewoo electric
 CAGR of 30%
HPCL Kenya Petroleum
(from 02 – 07) Refinery

VSNL Teleglobe
Mcloed Russel Moran tea
Vodafone Hutch
MARKET CAP – GDP
 P - NOTES

MARCH 04 AUGUST 07
31000 CRORE 300000 crore
20% of net FII 51% of net FII
 DATE SENSEX
July 25, 1990 1000
January 3, 1992 2000
February 29, 1992 3000
March 30, 1992 4000
October 8, 1999 5000
February 11, 2000 6000
June 20, 2005 7000
September 8, 2005 8000
November 28, 2005 9000
February 6, 2006 10000
March 21, 2006 11000
April 20, 2006 12000
October 30, 2006 13000
December 5, 2006 14000
July 6, 2007 15000
September 19, 2007 16000
September 26,2007 17000
October 9, 2007 18000
October 15, 2007 19000
October 29, 2007 20000
January 8, 2008 21000
 MARKET AT 21000
 To touch 10000 20 years

 To touch 20000 from 10000 20 months

 Market cap touch 62 lakh crore

 Short selling permission by SEBI & RBI

 All indices were at high

 Commodity price high

 MARKET CRASH IN JAN 08
 US market recession

 Weakness in global market

 FII turns net sellers

 Crude prices high

 R-Power IPO

 Pre – Budget movement

 FEB – 08
• Budget 08 – 09

• Short – term capital gain tax

• Loan waiver of 60000 crore to farmers

• No change in corporate tax

 MARCH – APRIL 08
 Sixth pay commission

 5.5 mn government employees

 Impact of 70% on profit

 25000 crore outgo from balance sheet

 Effective from Jan 1, 2006

 OCTOBER 08
 Collapse of investment bank

 Liquidity crunch

 Crisis of confidence
 December
Baltic index
 FUND RAISING
Debt Rs. in crore %

Domestic bond 91700 28

International bond 6492 -83

FCCB 42 -94

Equity

IPO 18300 -46

QIP 3700 -83

Right issue 29500 268

COLLAPSE FROM 21000
FREEFALL DAYS TAKEN DATE

Below 20K 4 Jan 16

Below 19k 2 Jan 18
Below 18k, 17k 1 Jan 21
Below 16k 1 Jan 22
Below 15k 37 Mar 17
Below 14k 64 June 24
Below 13k 5 July 1
Below 12k 67 Oct 6
Below 11k 2 Oct 8
Below 10k 6 Oct 17
Below 9k 5 Oct 24
 FII INVESTMENTS
Feb 09 -3990
Dec 08 -14800
Sept 08 -10700
June 08 -14032
March 08 -11431
Dec 07 20500
Sept 07 30800
June 07 12280
March 07 6650
Dec 06 13726
Sept 06 11200
June 06 -6000
March 06 17800
Dec 05 9400
Sept 05 17718
June 05 3231
March 05 11400
QUARTER RESULTS
ENTERING THE SLOWDOWN
PHASE
TRENDS IN RESULTS
CURRENT
 CURRENT SCENARIO
 The Business Confidence  2 lakh SME may turn sick
Index has fallen to 5 year  IPO market dried
 Export order cancelled  Unemployment of 6lakh
1792 people
 Production cut down by  GDP slowdown
Indian companies  Cut – down on Bank rates
 Commodity index to 6  Lowering of Inflation
years low
 Crude prices fallen down
 Hedge funds lose 170$ in
 Pledging of Shares
3rd quarter