INDIAN CAPITAL MARKET

 Market of Long-Term Funds.

 Issue of primary securities in the primary
market
 Issue of secondary securities in the primary
market
 Secondary market transactions in outstanding
securities which facilitate liquidity.
 Functions of Capital market
 Disseminate information efficiently
 Quick valuation of financial instruments
 Enabling wider participation
 Developing integration among long term &
short term funds, private sector & government
sector etc.
 Primary Capital Market
 Primary issues of the corporate sector lead to
capital formation
 Domestic funding through equity & debt
instruments
 External funding of equity through Global
Depository Receipts and American Depository
Receipts & Debt instruments through External
Commercial Borrowings & other ECB through
FDI, FII & NRI dEPOSITS
 Why do companies need to issue shares
to the public?
 What are the different kinds of issues?

 Initial Public Offering

 Right Issue
 Private Placement
 What is meant by Issue price?
 What is meant by Market Capitalisation?
 What is initial public offer?
 Who decides the price of an issue?
 the issuer in consultation with the Merchant Banker
shall decide the price.
 other, where the company and the Lead Manager (LM)
stipulate a floor price or a price band and leave it to
market forces to determine the final price.
 Book Building Process
 Appointment of book Runner (Merchant Banking)
 Submission of draft to SEBI
 Issuer & book runner decide the offer price
 Offer at different price level from syndicate
members. Also deciding about the opening & closing
dates for bids
 Deciding min. Cut-Off rate
 Final prospectus filed with ROC
 Placement portion opens for subscription only
 Public issue portion
 Cut-Off Price
 The actual discovered issue price can be any price in the
price band or any price above the floor price. This issue
price is called “Cut-Off Price”.
 What is minimum number of days for which a bid
should remain open during book building?
 How does one know if shares are allotted in an
IPO/offer for sale? What is the timeframe for getting
refund if shares not allotted?
 How long does it take to get the shares listed
after issue?
 What is the role of a ‘Registrar’ to an issue?
 Does NSE provide any facility for IPO?
 What is a Prospectus?
 This disclosure includes information like the
reason for raising the money, the way money
is proposed to be spent, the return expected on
the money etc. This information is in the form
of ‘Prospectus’ which also includes
information regarding the size of the issue, the
current status of the company, its equity
capital, its current and past performance, the
promoters, the project, cost of the project,
means of financing, product and capacity etc.
 What is an ‘Abridged Prospectus’?
 Who prepares the ‘Prospectus’/‘Offer
Documents’?
 What does ‘Draft Offer document’ mean?
 What does one mean by ‘Lock-in’?
 Listing of Securities
Admission of securities of an issuer to trading
privileges on a stock exchange through a
formal agreement also called Listing Agreement
 Delisting of securities

 What is SEBI’s Role in an Issue?

 Does it mean that SEBI recommends an

issue?
 Does SEBI tag make one’s money safe?
 Foreign Capital Issuance
 Can companies in India raise foreign
currency resources?
 a) Issue of foreign currency convertible bonds
known as ‘Euro’ issues
 b) Issue of ordinary shares through depository
receipts namely ‘Global Depository Receipts
(GDRs)/American Depository Receipts
(ADRs)’ to foreign investor
 American Depository Receipts
(ADRs)
 ADR is a U.S. negotiable Instrument in the form of a
certificate denominated in US Dollars representing
ownership in non-U.S. companies.
 Shares are issued by the issuing company with the
depository bank.
 Depository Bank in turn tenders DRs to the investors.
 It is a non-voting equity holding.
 EX: New York Stock Exchange (NYSE) , National
Association of Securities Dealers Automated
Association (NASDAQ), American Stock Exchange
(AMEX)
Global Depository Receipts (GDRs)
 a global finance vehicle that allows an issuer to
raise capital simultaneously in two or markets
through a global offering.
 The underlying shares correspond to the GDRs in a
fixed ratio say 1 GDR=10 shares.
 GDRs may be used in public or private markets
inside or outside US.
 GDR issues listed on the Luxembourg Stock
Exchange & the London Stock Exchange.
 Foreign Currency Convertible
Bonds ( FCCBs)
 FCCBs are bonds subscribed by non-residents
in foreign currency.
 Carry fixed interest rate & option of
convertibility.
 Interest is paid in dollars & redemption is also
in dollars.
 Interest is low but exchange risk is more.
 External Commercial Borrowings
(ECBs)
 Indian corporates are allowed to raise foreign
loans for financing infrastructure projects.
 Ex: Reliance petroleum raised $125 million in
the form of ECB’s in August 1996 carrying
low coupon rate of 7.84%
 Private Placement
 Involves issue of securities, equity or debt, to a
limited no. of subscribers, such as banks, FIs,
MFs, and high net worth individuals.
 Privately placed issue is one seeking
subscription from max. 50 members.
 Secondary Market
 Secondary market is an equity trading venue in
which already existing/pre-issued securities
are traded among investors.
 Secondary market could be either auction or
dealer market.
 Consists of recognized stock exchanges
operating under rules, by-laws and regulations
duly approved by the government.
 Role of a Stock Exchange in buying and selling
shares?
Trading platform provided by NSE is an electronic
one and there is no need for buyers and sellers to
meet at a physical location to trade.
 Demutualisation of stock exchanges

Legal structure of an exchange whereby the

ownership, the management and the trading rights at
the exchange are segregated from one another.