RECENT DEVELOPMENT IN

CAPITAL MARKET
Indian Capital Market - Historical perspective
2

Stock Market was for a privileged few

Lack of Transparency - High tones costs
No use of Technology
Outdated banking system
Volumes - less than Rs. 300 cr per day
No settlement guarantee mechanism - High
risks

09/23/09
 Why Capital Markets Exist
3

Capital markets facilitate the transfer of capital (i.e.

financial) assets from one owner to another.
They provide liquidity.
 Liquidity refers to how easily an asset can be
transferred without loss of value.
A side benefit of capital markets is that the
transaction price provides a measure of the value
of the asset.

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Indian Capital Market Deficiencies
4

Lack of transparency
Physical settlement
Variety of manipulative practices
Institutional deficiencies
Insider trading

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 Role of Capital Markets
5

Mobilization of Savings & acceleration of Capital

Formation
Promotion of Industrial Growth
Raising of long term Capital
Ready & Continuous Markets
Proper Channelisation of Funds
 Provision of a variety of Services

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Factors contributing to growth of Indian
Capital Market
6

Establishment of Development banks &

Industrial financial institution.
Legislative measures
Growing public confidence
Increasing awareness of investment
opportunities
Growth of underwriting business
Mutual Funds
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 7

Setting up of SEBI

Credit Rating Agencies

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 Capital Market Instruments
8

Equity Hybrid Debt

Deep
Equity Preference ADR / GDR Debentures Zero coupon
Shares bonds Discount
Shares
Bonds

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 Money Market Vs Capital Market
9

It is for short term • It is for long term

• Supplies funds for • Supplies funds for
Working fixed capital
• Capital requirement
• Instruments are • Instruments are
Treasury-bill, shares, debentures,
Commercial papers, etc.
etc • Each single
• Each single instrument is of
instrument is of large small amount
amount • Development bank
• Central bank and and insurance 09/23/09
 Contd.
10

• These • These
instruments do instruments have
not have secondary
secondary market.
market. • Transactions are
• Transactions are at formal place.
on over phone Eg stock market.
and no formal • Transaction have
place to be conducted
• Transaction with the help of
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 HOW TO MAKE MONEY FROM
CAITAL MARKET? 11

• patience, profound knowledge

• Best guess.
• Diversification .
• Portfolio management.

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 MODERNISATION & COMPUTERISATION OF
CAPITAL MARKET
12

 PHASE1 Display of info. about stock through the Display

Info. Driven System (DIDS) into the different places
electronically.

 PHASE 2 Convert the input & output interfaces from the

manual mode into a complete electronic one. Reporting of
daily transaction & transmission of reports generated by
settlement system.

 PHASE 3 Provides automation in the trading system.

 PHASE 4 The facility of screen-based trading would be

extended to specified shares.

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 How OTCEI helps in Modernisation &
Development of capial market
13

OVER THE COUNTER EXCHANGE OF INDIA (OTCEI), trading take

place through a network of computers installed in the offices of
respective members/dealers who will be located at several places within
the same city & across cities. These computers, linked to the central OTC
computer through satellite & telephone lines, allow dealers to quote,
query & transact using telecommunication links.
In conventional stock exchanges, an investor runs the risk of being
misinformed on prices paid or secured for purchases or sales. The
computerised OTC SYSTEM IS transparent with regard to the price, the
time of trading & the amount retained as brokerage. This results in the
trading process becoming more transparent, quick & disciplined.

09/23/09
 Mr. Deepak Mohani CEO of Trendwatchindia An IIT and IIM pass-out
(1989)
14
A specialised marketplace that facilitates
the exchange of securities that already
exists
A stock exchange constitutes any body of
individuals, whether incorporated or not ,
constituted for the purpose of assisting,
regulating or controlling the business of
buying , selling or dealing in securities
According to HASTINGS Stock Exchanges
or security market comprises all the places
where buyers and sellers of stocks and
bonds or their representatives undertake
transactions involving the sale of securities
A type of security that signifies
ownership in a corporation and
represents a claim on part of
the corporation's assets and earning
There are two main types of stock:
common and preferred.
Common stock usually entitles the
owner to vote at shareholders'
meetings and to receive dividends.
Preferred stock generally does not
have voting rights, but has a higher
claim on assets and earnings than the
common shares.
The Sensex is a "securities index".
An index is basically an indicator.
It gives you a general idea about
whether most of the stocks have
gone up or most of the stocks have
gone down.
The Sensex is an indicator of all the
major companies of the BSE.
The Nifty is an indicator of all the
major companies of the NSE.
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 Depository
15

National Securities Depository Limited (NSDL)

Central Depository Services Limited (CDSL)
Depository Participant
Depository Participants Pool account
Settlement Account of Clearing Agency.

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 Market Terms
16

 MARK-TO-MARKET MARGIN AND INTRADAY LIMIT.

 CIRCUIT BREAKER:- SEBI has imposed price limits for stocks whose
market prices are above Rs10 up to Rs20, a daily price change limit and weekly
price change limit of 25 percent.BSE imposes price limits as a circuit breaker
system to maintain the orderly trading of shares on
 the exchange . BSE’s computerized trading system rejects buy or sell orders of a
stock at prices outside the price limits. The daily price limit of a stock is
measured
 from the stock’s closing price in the previous trading session. The weekly price
limit is based on its closing price of the last trading in the previous week,
usually its closing price on the previous Friday.

09/23/09
 National Exchange for Automate Trading (NEAT)
17

 NSE introduced for the first time

in India, fully automated screen
based trading.
 It uses a modern, fully
computerised trading system
designed to offer investors across
the length and breadth of the
country a safe and easy way to
invest
 The NSE trading system called
'National Exchange for Automated
Trading' (NEAT) is a fully
automated screen based trading
system, which adopts the principle
of an order driven market
 VSAT = Very Small Aperture
Terminal

09/23/09
 BSE’s On Line Trading System (BOLT)
18
 To facilitate smooth transaction, BSE had replaced its
open outcry system with BSE On-line Trading (BOLT)
facility in 1995
 This totally automated screen based trading in securities
was put into practice nation-wide within a record time of
just 50 days
 The BOLT platform capacity has been enhanced to 40
lakh orders per day by upgrading the hardware.
 BOLT has been certified by DNV for conforming to
BS7799 security standards. With this, BSE is the second
stock exchange in the world to have this certification
 Exchange has also introduced the world's first centralized
exchange based Internet trading system, BSEWEBx.com.
 The initiative enables investors anywhere in the world to
trade on the BSE platform
09/23/09
Indian Economy and Capital Market at a glance
19
 Second fastest growing economies after China with an average annual growth rate of more than 8
per cent in the last three years
 India’s growth rate has surpassed some of the developed economies
 GDP at current market prices is over US $890 billion.
 Foreign investment can be made in India with specific prior approval in sectors other than those
prohibited
 Foreign investment is now freely allowed in all sectors, including the services sector subject to
specified sect oral ceilings except in a few strategically sensitive areas
 General permission granted to the Indian companies for issuing rights/bonus shares to the
existing nonresident shareholders subject to adherence to sect oral cap
 Indian companies may issue shares under Employee Stock Option Scheme to its employees who
are resident outside.
 Foreign investment can be made in India with specific prior approval in sectors other than those
prohibited
 Foreign investment is now freely allowed in all sectors, including the services sector subject to
specified sect oral ceilings except in a few strategically sensitive areas
 An Indian company can raise foreign currency resources overseas through ADRs or GDRs
 Foreign Institutional Investors are allowed to invest in India under the Foreign Institutional
Investment scheme

09/23/09
 Indian Economy and Capital Market
Contd
20
 Portfolio investment limits in individual companies can be raised by Board resolution keeping the
overall sect oral cap in view
 Investments can be made through foreign venture capital funds
 Private equity is allowed as an alternative form of investment
 Qualified Institutional investors are allowed to invest in Indian Depository Receipts floated by
foreign companies. FIIs and NRIs can also invest in IDRs after obtaining permission from RBI
 FIIs can make investments in Corporate and Government Bond markets within the limits

 Household Investment in Shares and debentures as percentage of financial savings at 4.9 per cent
 Market capitalization of Rs.34,62,692 crore or over US $ 770 billion
 India is the world’s 12th largest in market capitalization.
 Market cap-GDP ratio is almost 100 per cent
 With Sensex crossing 20000 mark – ahead of most of the emerging economies with a P/E ratio of
22.01
 NSE (India’s National Stock Exchange) is the third largest in the world in the number of trades
after NYSE and NASDAQ
 India has 23 small and 2 big stock exchanges
 The 2 big stock exchanges (National Stock Exchange and Bombay Stock Exchange) account for 90
per cent of trade

09/23/09
 Indian Economy and Capital Market
Contd
21

 Over 7000 listed companies on the stock exchanges – largest in the world
 9040 brokers in cash segment and 1064 in derivative segment of the market
 122 investment bankers in the market
 58 under writers to support primary issues
 40 foreign venture capital funds
 120 Portfolio managers
 11 custodian banks
 2 depositories with over 9 million beneficiary owner accounts
 120 Portfolio managers
 Number of traders at 20 million
 Number of internet trading clients at 1.44 million
 Internet trading at 12 per cent of total trading
 Year on year return during the last year at 74 per cent
 Daily volatility of the market 0.76 per cent to 1.29 per cent
 39 mutual funds with over 700 schemes for investment
 Cumulative assets of mutual funds over US$68 billion
 India launches Capital Protection Fund and Gold Exchange Traded Funds
 About 1000 foreign institutional investors
09/23/09
 Capital Markets Defined
22

 When referring to a capital market, it is important to note that the term can refer to a rather
broad range of products and services that are associated with finances and
investments. To that end, a capital market will include such components as the stock market,
commodities exchanges, the bond market, and just about any physical or virtual
facility or medium where debt and equity securities can be bought or sold.
 As a market for securities with a very broad reach, the capital market is an ideal environment for
the creation of strategies that can result in raising long-term funds for bond issues or even
mortgages. At the same time, the capital market provides the medium for short-term fund
strategies as well. Essentially, any type of financial transaction that is meant to result in the buying
and selling of securities and commodities for profit can rightly be considered part of the capital
market.
 Institutions are also part of the framework of the capital market. Stock exchanges are one of the
more visible examples of established operations that give form and function to the capital market.
Along with the stock exchanges, support organizations such as brokerage firms also form part of
the capital market. Over the counter markets are also included in the working definition for a
capital market. By providing the mechanisms that make trading possible, these outward
expressions of the capital market make it possible to keep the process ethical and more easily
governed according to local laws and customs.

09/23/09
 The Capital Markets Systems Framework
23

The Capital Markets Systems Framework Alternative


The Capital Markets Systems Framework overcomes semantic confusion and enables greater visibility
and agility through:

A common data model across business lines.

 A metadata repository.
 A library of proven end user application components.
 A transaction development tool for rapidly building new components.

The Capital Markets Systems Framework enables three strategies: Composite applications. Most
new functionality is based on a different combination of functionality that already exists. The ability to
create composite applications dramatically speeds up time to market for new systems. This is only
possible with a common data model and framework.
 Analytic and front-end systems. The Framework separates operational systems from analytic
front-end systems while allowing both to use a common data model/repository with data
harmonization interfaces.
 Consolidation of core processing systems. At some point old systems have to be retired and
replaced, as the cost and risk of maintaining multiple overlapping legacy system starts to impact
competitiveness. Using a common framework significantly reduces the risk, cost and time involved
with these major consolidation projects.
09/23/09
 Capital Feeders
24

All Banks
All scheduled and non-scheduled commercial banks
State Co-op. banks
All non-bank financial institutions
All India term lending institutions
Insurance Cos.
State Level Institutions
All India Institutions.

09/23/09
 Repos Market
25

Transaction wherein two parties agree to sell and re-

purchase the same security.
Agreement to buy back is on a future date on a
mutually decided price.
Repo-when viewed from the seller perspective
Re-repo when viewed from buyer perspective

Uses:-

Meet shortfall in cash position

Increase in returns on funds held
Borrow to meet regulatory requirements
(RBI) Adjust liquidity in the financial system.
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 Reforms in India
26

May,92:-FII investment, resources through GDRs and

Foreign Currency Convertible Bonds (FCCBs).
31st March,96:- Registration of FII’s with SEBI.
April, 97:- Securities Contracts Regulation Act(SCRA)-
Auction of government securities.
21st April,99:- Interim Adjustment Facility(ILAF):-
Collateralized lending facility(CLF) replaced general re-
finance facility.
17th Jan,2000:- Dematerialization of share certificates.
1st.April,03:- T+3 rolling settlement of securities across
exchanges.
1st.April,06:- Fiscal Responsibility & Budget Management
Act(FRBM):-Monetary Policy, fiscal deficit review.

09/23/09
 Lessons for Financial Stability
27

Fall out sub-prime market(mortgage) in USA.

Excessive leveraging
Large changes in liquidity conditions
Securitization enhanced risk distribution.
Risk analysis of credit derivatives, structured
products and role of rating agencies.
Risk consolidation for banks in terms of reputation
and further internalize losses.

09/23/09
 FAQs MARGINS BASICS - NSE
28
 What are the different components of capital and collateral that a member needs to
maintain with NSE in order to be eligible to trade ? Members are required to
provide and maintain a certain minimum deposit with the NSE/NSCC in order to be
eligible to trade on the Capital Market segment of NSE. This amount is known as
Base Minimum Capital (BMC) or Base Capital.
 Besides this, members may also provide additional deposits known as Additional
Base Capitals (ABC). Such ABC may either be margin adjustable, viz - Margin
Adjustable Base Capital (MABC) or margin non-adjustable, viz - Non-Margin
Adjustable Base Capital (NMABC) i.e. ABC = NMABC + MABC
 BMC plus ABC constitute the Total Base Capital (TBC) of a clearing member.
 How much turnover/exposure is a member allowed on these ? The maximum
permissible gross exposure is a multiple of the Net Total Base Capital (NTBC)
available and is determined as under : NTBC upto Rs.1 crore : 7.9 * NTBC
 NTBC greater than Rs.1 crore : (Rs.7.9 crore) + (10.8 * NTBC in excess of Rs.1 crore)
 Note : NTBC = TBC – MABC adjusted towards margin
 The gross exposure allowed is cumulated for open positions across market sub-
segments until the actual pay-in day of each settlement, and includes positions for
securities in no-delivery.

09/23/09
FAQs MARGINS BASICS – NSE-Contd.
29

 Permissible turnover limit is 33.33 times of NTBC available. This

limit is computed intra-day and is reset at the beginning of each
day.
 What is the difference between NMABC and MABC ? Exposure
and turnover limits are available against both NMABC and
MABC, but as the name suggests, NMABC is not adjusted against
margin requirements whereas MABC is used for meeting margin
requirements. If a particular amount is payable as margin on a
day, it is first adjusted against the MABC available. Balance
margin, if any, is required to be paid in cash. To the extent that
MABC is adjusted against margins, it will not be available for
exposure/turnover purposes. The MABC available for exposure
will therefore fluctuate daily depending on how much of it has
been utilized against margins.
 In the case of NMABC, the entire amount is available for exposure
and turnover and no margins are adjusted against the same.

09/23/09
FAQs MARGINS BASICS – NSE-Contd.
30
 What is the benefit of providing NMABC and MABC? Can one still trade without providing these? The
benefit of providing MABC are as follows:
 1.4.1.1 Day to day cash management becomes simplified as the operational requirements of paying
cash margins daily are avoided. Margins payable, if any are first adjusted against MABC and only the
difference is required to be paid.
 Margins are collected at the end of day. Intra-day, the MABC is available for gross exposure

and turnover purposes

 MABC can be provided in the form of bank guarantees or FDRs, which leverages funds
available with members and reduces liquid cash requirements against margins.
The benefits of providing NMABC are as follows:
 Margins are not adjusted against NMABC and this component of your base capital is always
available for gross exposure. This is unlike MABC where the entire amount may set off
against margins; this may trigger disablement of member on account of exposure violation
if the member has already used the MABC towards exposure limits. NMABC thus allows the
member to have some exposure limit available irrespective of margin payable and reduces
instances of disablement from trading on account of exposure violation. This also reduces
uncertainty regarding the exposure limits permissible.
 Unlike with MABC, approved securities can be used towards NMABC upto a maximum of

75% of the total ABC. Therefore, liquid cash is not blocked to take additional exposures.
It is not necessary to provide any additional amount towards MABC and NMABC. In that
case, gross exposure allowed will be dependent on the BMC and daily margin payable will
require to be paid in cash.
09/23/09
31

09/23/09
Broker Offers

32

09/23/09
 Indian Capital & Financial
Market Summary
33
SENSEX – Hitting the all time high

12043
Just to sum it up, In di a has had a dream y ea r

11699
14000

11280

12454
10609
10399

10744
10370
as fa r as c api tal ma rk ets are c onc erned , an d 12000

9920
9398
8634

8789
of c our se we be liev e, t he be st is yet to 10000

7892
7805
7635
7194
come !! !

6715
6154
8000

 Rising Markets Driven by : 6000

 Continued Surge in FII flows 4000

 Increased primary mobilisation by Mutual Funds 2000
 Increased retail participation 0

May-05

Feb-06

May-06
Jun-05

Oct-05

Nov-05

Dec-05

Jan-06

Mar-06

Jun-06
Jul-05

Jul-06
Sep-05

Sep-06
Apr-05

Aug-05

Aug-06
Apr-06
 Primary market issuances continue to attract heavy
flows

Robust CM Market Growth Surge in F&O Market Volumes

742,390
328126

800,000

737,832
734,842
350000
297213
264827

523,803

556,797
492,664
700,000

487,580
228734
227238
226661

300000

477,255
223048
205424
221636

433,651
600,000

395,845
399,750
372,301
184882

179890

250000
173385
169857

162253

469,665
308,160
500,000

271,242
193871
130146

200000

208,375
120516

400,000 195,962
150000 300,000
100000 200,000
50000 100,000 (Rs. in cr)
(Rs. in cr)
0 0

Nov.05
Jul.05

Jul.06
Jan.06
Jun.05

Jun.06
Apr.05

Oct.05

Apr.06

Aug.06
Aug.05
Sep.05

Dec.05

Feb.06
Mar.06

May.06
May.05
Nov-05
Jul-05

Jul-06
Jun-06
Jun-05

Jan-06

Apr-06
Apr-05

Oct-05

Mar-06
Aug-05
Sep-05

Dec-05

Feb-06

Aug-06
May-05

May-06

09/23/09
Current Market Scene

34

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 35

THANK YOU.

09/23/09