Recent Development In Capital Market

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Stock Market was for a privileged few Lack of Transparency - High tones costs No use of Technology Outdated banking system Volumes - less than Rs. 300 cr per day No settlement guarantee mechanism - High

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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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Setting up of SEBI Credit Rating Agencies

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Capital Market Instruments 8

Hybrid

Equity

Equity Shares

Preference Shares

ADR / GDR

Debentures Zero coupon bonds

Debt

Deep Discount Bonds

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Money Market Vs Capital Market 9

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It is for short term Supplies funds for Working Capital Instruments are Treasury-bill, Commercial papers, etc Each single instrument is of large amount Central bank and

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It is for long term Supplies funds for fixed capital requirement Instruments are shares, debentures, etc. Each single instrument is of small amount Development bank and insurance 09/23/09

Contd. 10

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These instruments do not have secondary market. Transactions are on over phone and no formal place Transaction

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These instruments have secondary market. Transactions are at formal place. Eg stock market. Transaction have to be conducted 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. 09/23/09

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. 09/23/09

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.

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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

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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

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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

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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.

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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.

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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 refinance 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.

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FAQs MARGINS BASICS - NSE 28  What are the different components of capital and collateral that a member needs to

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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 subsegments until the actual pay-in day of each settlement, and includes positions for securities in no-delivery.

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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

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Broker Offers 32

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Indian Capital & Financial Market Summary 33

12454

11699

10609

10744

10399

11280

10370

9920

9398

8789

8634

7892

7805 Aug-05

Sep-06

Aug-06

Jul-06

Jun-06

May-06

Apr-06

Mar-06

Feb-06

Jan-06

Dec-05

Nov-05

Oct-05

Sep-05

300,000

100000

742,390 556,797 477,255

737,832

734,842

487,580 492,664

433,651 395,845

469,665

400,000

399,750

500,000

271,242 308,160

600,000

372,301

700,000

523,803

800,000

195,962 208,375

297213 223048 173385

328126 264827

228734 205424

227238

179890 162253

226661

221636

7635

0

Surge in F&O Market Volumes

193871

200,000

50000

(Rs. in cr)

100,000

(Rs. in cr) Aug.06

Jul.06

Jun.06

May.06

Apr.06

Mar.06

Feb.06

Jan.06

Dec.05

Nov.05

Oct.05

Sep.05

Aug.05

Jul.05

Jun.05

Aug-06

Jul-06

Jun-06

May-06

Apr-06

Mar-06

Feb-06

Jan-06

Dec-05

Nov-05

Oct-05

Sep-05

Aug-05

Jul-05

Jun-05

Apr-05

May-05

May.05

0

0

Apr.05

150000

130146

200000

120516

250000

169857 184882

300000

7194

2000

Robust CM Market Growth 350000

6715

4000

Jun-05

Continued Surge in FII flows Increased primary mobilisation by Mutual Funds

May-05



8000 6000

Increased retail participation Primary market issuances continue to attract heavy flows



10000

Apr-05

 

12000

Jul-05

Rising Markets Driven by :



14000

6154

Just to sum it up, In di a has had a dream y ea r as fa r as c api tal ma rk ets are c onc erned , an d of c our se we be liev e, t he be st is yet to come !! !

12043

SENSEX – Hitting the all time high

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Current Market Scene 34

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THANK YOU.

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