A Project Omkar.docx

A PROJECT ON “FINANCAL

MARKETING”

SUBMITTED BY: OMKAR NAVALE

Roll No. 332 Submitted to,

UNIVERSITY OF MUMBAI BACHELOR OF COMMERCE (FINANCIAL MARKETING)

Semester VI (2018-2019)

Project Guidance by Professor: DEVENDRA VYAS

Uttari Bharat Sabha’s RAMANAND ARYA D.A.V. COLLEGE DATAR COLONY BHANDUP (E), MUMBAI- 400042. 1

A PROJECT ON “FINANCIAL MARKETING” BACHELOR OF COMMERCE (FINANCIAL MARKETING) Semester VI

University of Mumbai (2018-2019) Submitted In Partial Fulfillment of the requirements For the Award of Degree of Bachelor of Commerce (Finance and Marketing) By OMKAR NAVALE Roll No. 332

Uttari Bharat SaBha’S RAMANAND ARYA D.A.V. COLLEGE DATAR COLONY BHANDUP (E), MUMBAI-400042 2

DECLARATION I, Mr.OMKAR NAVALE the Student of Bachelor of Commerce (Financial Marketing) Semester VI (2018-2019) hereby declare that have completed the Project on “FINANCIAL MARKETING” The information submitted is true and original to the best of my knowledge

SIGNATURE OF THE STUDENT GAJANAN MORE ROLL NO.331

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ACKNOWLEDEMENT I owe a great many thanks to a great many people who helped and supported me doing the writing of this book. My deepest thanks to lecturer, Prof. DEVENDRA VYAS Guide of the project for guiding &correcting various documents of mine with attention care. He has taken pains to through my project and make necessary corrections as and when needed. I extended my thanks to the principal Dr. Ajay Bhamare of Ramanand Arya D.A.V. College of Commerce &Science for extending support. My deep sense of gratitude to Principal Dr. Ajay Bhamare ofRamanand Arya D.A.V College of Commerce & Science for support & guidance. Thanks and appreciation to the helpful people at Ramanand Arya D.A.V College of Commerce & Science, for the support. I would also thanks my institution and faculty without whom this project has been a distant reality. I also extended my heartfelt thanks to my family and well-wishers.

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EXECUTIVE SUMMARY India’s investment climate continues to send mixed signals, as the BhartiyaJanata Party (BJP), led by Prime Minister NarendraModi, actively courts investment, but implementation of economic reforms to attract investors does not meet rhetoric. The economy as a whole performed well in 2016, growing over 7% with a stable rupee and political stability throughout the country. Non-performing assets continue to hold back banks’ profits and limit their lending. However, stable, relatively low inflation, weak credit demand, and strong management from India’s central bank, the Reserve Bank of India, have mitigated the negative impact on credit. Employment, while difficult to measure given the large informal economy, appears to lag growth, while a demographic boom means India must generate over ten million new jobs every year. India has opened foreign direct investment (FDI) by particular sector, sometimes all at once and sometimes gradually reducing the FDI limitations. In 2016 the government opened FDI in private security and approved pharmaceutical projects to 74%, and increased investment in defense to 49% under the automatic route. With government clearance, defense and pharmaceutical investments can exceed the capped limit. It also allowed 100% FDI in food products, marketplace model e-commerce, broadcasting, airports on land already zoned for that use, and air transport services. In 2016, FDI into India jumped 18% to a record $46.4 billion, though Foreign Portfolio Investments (FPI) saw a net outflow of $2 billion. Multinational companies made large investment into the electronics, solar energy, automobile, defense, and railways sectors. Finance Minister ArunJaitley, in his annual budget speech, formally proposed abolishing the Foreign Investment Promotion Board, which screens FDI, in an effort to ease investment. On the legislative front, Parliament passed a constitutional amendment to replace the fractured, state-level tax code with a nationwide goods and services tax (GST). It also replaced myriad existing laws on the reorganization of companies, insolvency, and asset restructuring into one unified law via the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act. These steps should reduce the time taken to dissolve a company, and speed up the process of debt recovery for investors.

The Modi government undertook further reforms in 2016 to formalize the large inform

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economy, and digitize the economy. In addition to the GST overhaul, which will result in greater tax registration and digital tax reporting, the government demonetized its INR 500 and INR 1000 notes, worth 86% of the currency in circulation, causing a shock to the economy in November-December 2016. Through demonetization, the government aimed to better track undeclared earnings (known as “black money” in India) for tax purposes, and increase the usage of digital payments which lags other major emerging economies. India announced its intention to abrogate all bilateral investment treaties (BITs) negotiated on the basis of its 1993 model BIT. Some BITs have already lapsed and the rest will do so in 2017. India intends to renegotiate them on the basis of its new December 2015 model BIT which requires that foreign investors exhaust all domestic judicial remedies for up to five years, before entering into international arbitration, unless the claim is not judicable by Indian courts. This shift is an attempt to see investment disputes are resolved in domestic courts, as India has lost a number of recent disputes in international arbitration. The United States currently does not have a BIT with India. In 2017, the government expects to implement its GST on July 1, which will transform the tax code and could lead to significant structural changes in the economy. Investors will also monitor how the government screens FDI following the abolition of the Foreign Investment Promotion Board (FIPB). Investors will also pay close attention to further liberalization of FDI – the government has discussed expansions of the food and insurance investment policies, while industry awaits changes to FDI policy in multi-brand retail.

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INDEX Chapter No.

Topic

1

INTRODUCTION OF FINANCIAL MARKETING CONCEPT & OBJECTIVES OF FINANCAIL MARKETING GUIDELINES FOR BANKS DEALING IN FINANCE TYPES OF FINANCIAL MARKET

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Page No.

CHAPTER 1 INTRODUCTION OF FINANCIAL MAKETING Financial markets are places where people and companies come to buy and sell assets like stocks, bonds (debt), commodities and other products. People have traded on financial markets for hundreds of years and they grew out of a very real practical need – to help people buy and sell things more efficiently, and to help companies that needed money to raise it more quickly. Over the years, markets have grown bigger and faster. More people than ever before are now able to get access to these markets. Once they were the preserve of big banks, finance houses and very wealthy individuals, but no longer.

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CHAPTER 2 CLASSIFICATION OF FINANCIAL MARKETS There are 2 broad classifications of financial markets. (a) the organized markets and (b) the unorganized market. Furthermore, these 2 broad categories are further sub-classified into various heads. Read further to gain absolute in-depth knowledge of the various kinds/ classifications of financial markets. I. ORGANIZED MARKET The organized market consists of standard rules and regulations which govern the functioning of financial dealings. Moreover, the financial organizations which follow the rules and regulations of apex institutions while dealing with their financial functions belong to the organized financial market. Therefore, there is a high degree of institutionalization and instrumentalization. Moreover, these markets are often also subject to high supervision and strict control of the RBI or any other regulatory body. They are further subclassified into capital market and money market. 1. Capital Market The capital market is a market that deals with financial assets. These financial assets have a long maturity period or an indefinite maturity period. Moreover, the capital market deals with any long-term securities which have a maturity period of above one year. In simple words, the capital market is a financial market that deals with: 

financial assets with long or indefinite maturity period; and



long-term (wherein the maturity period is beyond 1 year) securities Furthermore, the capital market is further sub-classified into 3 broad categories Industrial securities market, government securities market and longterm loans market.

a. Industrial securities market It is a market for industrial securities only. It deals with industrial securities like equity shares, preference shares, debentures, bonds, etc. Moreover, it is a market where industrial organizations raise their capital by issuing investment instruments to the public. Furthermore, this market is of 2 types, primary market and secondary market. (i) Primary Market – is also another name for ‘new issue market’ or ‘new financial claims’. The primary market or the new issues market deals with those financial securities that are issued to the investing public for the first time. Moreover, the borrowers in the primary market exchange new financial securities for long-term funds. And thus primary market helps in the formation of capital. There are 3 ways in which the company can raise capital in the new issues market. The company can either choose the public issue, the rights issue or the private placements. In addition, the public issue is common when new companies want to raise capital for the first time. However, if an existing company wants to raise further capital, it first offers to the existing shareholders. This is the rights issue. Finally, private placements are the way of selling securities privately to small groups of investors. (ii) Secondary Market – is also another name for the stock exchange. The secondary market is a market for the secondary sale of securities. In simple words, securities which were already a part of the primary market are a part of this market. However, the secondary market facilitates the buying and selling of secondary securities. Moreover, these securities are often a part of the stock exchange trades. This market provides for a continuous and regular market for the buying and selling of secondary securities. b. Government securities market This securities market indulges in the trading of government securities. Moreover, there are 2 types of government securities: long-term and short-term. Therefore, the long-term government securities are a part of the capital market and the short-term government securities are a part of the money market. Some examples of government securities that are a part of this market are securities issued by the:



Central government

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State government

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Port trust

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Semi-government authorities Furthermore, these government securities may be in the form of:

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promissory note

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stock certificates

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bearer bonds c. Long-term loans market In this market, development banks and commercial banks play a major role in supplying loans. These banks comprise the long-term loans market wherein they lend long-term loans to corporates. They are further classified into 3 types. (i) Term Loan Market – is responsible for providing term loans to corporate customers either directly or indirectly. Furthermore, they either provide longterm loans or medium-term loans to the customers. (ii) A market for Mortgages – is a market that supplies mortgage loans mainly to only individual customers. However, such is loan is often given against the security of an immovable property. (iii) A market for Financial Guarantees – is a market where finances are provided with the guarantee of a reputed person.

2. Money Market The money market is a market that deals with financial assets. These financial assets have a short maturity period or a definite maturity period. Moreover, the money market deals with any short-term securities which have a maturity period of under one year. In simple words, the money market is a financial market that deals with: 

financial assets with short or definite maturity period; and



short-term (wherein the maturity period is below 1 year) securities Furthermore, the capital market is further sub-classified into 4 broad categories. a. Call money market – is a market for extremely short period loans. These loans mature within 1 to 14 days. Therefore, they are highly liquid in nature. Moreover, these loans are repayable on demand, either at the option of the lender of the borrower. b. b. Commercial bill market – is a market for bills of exchange arising out of trade transactions that are genuine in nature. However, the bill market is underdeveloped in India. Although the RBI is taking many steps to develop a proper bill market, it seems to be difficult to establish one in India. c. Treasury bill market – is a market for treasury bills which has a very shortterm maturity period. In addition, a treasury bill is a promissory note that is issued by the Government. However, there are 2 types of treasury bills: (i) the ordinary and (ii) the ad hoc treasury bills. d. Short-term loan market – is a market where short-term loans are provided to corporate customers. Because these loans facilitate the meeting of the firm’s working capital requirements.

II. UNORGANIZED MARKET There are many money lenders and indigenous bankers who lend money to the public. These money lenders do not fall under the supervision of any specific apex institute. And hence, they do not have to follow strict principles, rules and regulations. Many private finance companies and chit funds do not fall under the control of the RBI. Such institutions comprise of the unorganized financial markets.

CHAPTER 3 THE FINANCIAL MARKETS OBJECTIVES Students will be able to: • Understand the trade-off between risk and reward in investing • Identify and define the three major financial asset classes • Explain what factors cause financial market fluctuations and crises List the three dates in the past century before 2007 when the US stock market declined dramatically • Explain why governments and companies have issued bonds historically and today • Describe what drove the history of the delivery of information to investors VOCABULARY Asset – Something of value to an individual or a company. The major financial asset classes are stocks, bonds and commodities. Bear Market – A market that is declining in value. Bonds – A financial instrument that is a promise to repay borrowed money. Bonds are issued at a fixed rate of interest, and with a set maturity date. Bonds traded in the financial markets include treasuries, municipal bonds, corporate bonds and asset backed securities, such as those backed by a package of mortgage loans.

Bubble – An extended period of extreme overvaluation. During a bubble, investors are driven by contagious optimism and by the fear of missing out while others make millions. A bubble can occur to the stock, bond, commodity or real estate markets, or to the economy of one country or region. Bull Market – A market that is rising in value. Commodities – Any raw material, such as oil, silver, gold, wheat or pork bellies. Commodities can be sold for physical delivery, or traded as “futures” on a commodities exchange, where investors or farmers or companies buy or sell a raw material for delivery at a certain price on a set date in the future. Financial futures, such as foreign exchange and interest rates, are also traded on commodity exchanges. Commodity Exchange – A place which offers a regulated market in everything from the future price of pork bellies to stock indexes. The Chicago Mercantile Exchange Group (CME) is a futures exchange where interest rates, foreign exchange and stock indices, among other things, are traded. Credit –The ability of a person(s) or organization(s) to borrow money. Diversification – Investing in more than one type of asset to reduce investment risk. For example, a diverse portfolio includes different stocks from a variety of industries. Dividend – A payment made to shareholders from a company’s earnings, usually quarterly. The company’s board of directors usually set the amount of the dividend. Dow Jones Industrial Average – An index that measures the performance of a basket of 30 stocks, used widely to track the performance of the stock market. The first Dow Jones Industrial Average, created in 1896, consisted of only 12 stocks, 11 of which are still in business today. Earnings per share –The profits allocated to each outstanding share of stock. This figure is determined by dividing the company’s net income by the number of shares outstanding.

Futures – A financial instrument that represents a legally binding agreement to buy or sell a specified quantity of a commodity at a set price and location on a predetermined date. Insider Trading – The illegal manipulation or communication of information by insiders to get an investing edge. Liquidity – The ability of an asset to be changed into cash quickly and without a price decrease. Stocks – A share of ownership in a company. Stock Exchange – A marketplace where stocks are bought and sold. Ticker – A scrolling print or electronic display of current stock prices. Volatility – The rate at which the price of a stock, bond or commodity changes (fluctuates) in value. This may also be applied to an entire exchange, or the market in general. Yield – For a bond, the yield is the income from the interest rate on the bond divided by its face

CHAPTER 4

Functions of financial markets  Intermediary functions: The intermediary functions of financial markets include the following  Transfer of resources: Financial markets facilitate the transfer of real economic resources from lenders to ultimate borrowers.  Enhancing income: Financial markets allow lenders to earn interest or dividend on their surplus invisible funds, thus contributing to the enhancement of the individual and the national income.  Productive usage: Financial markets allow for the productive use of the funds borrowed. The enhancing the income and the gross national production.  Capital formation: Financial markets provide a channel through which new savings flow to aid capital formation of a country.  Price determination: Financial markets allow for the determination of price of the traded financial assets through the interaction of buyers and sellers. They provide a sign for the allocation of funds in the economy based on the demand and to the supply through the mechanism called price discovery process.  Sale mechanism: Financial markets provide a mechanism for selling of a financial asset by an investor so as to offer the benefit of marketability and liquidity of such assets.  Information: The activities of the participants in the financial market result in the generation and the consequent dissemination of information to the various segments of the market. So as to reduce the cost of transaction of financial assets.

 Financial Functions Providing the borrower with funds so as to enable them to carry out their investment plans. Providing the lenders with earning assets so as to enable them to earn wealth by deploying the assets in production debentures. Providing liquidity in the market so as to facilitate trading of funds. Providing liquidity to commercial bank Facilitating credit creation    

Promoting savings Promoting investment Facilitating balanced economic growth Improving trading floors