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Reform's in capital Market & its impact on IndianCapital Market
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Indian Capital Market -
Historical perspectiveStock Market was for a
privileged few
Archaic systems - Out crymethod
Lack of Transparency - High
tones costs
No use of Technology
Outdated banking system
Volumes - less than Rs. 300
cr per day
No settlement guaranteemechanism - High risks
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Indian Capital markets -
Chronology1994-Equity Trading commences on NSE1995-All Trading goes Electronic
1996- Depository comes in to existence
1999- FIIs Participation- Globalisation
2000- over 80% trades in Demat form
2001- Major Stocks move to Rolling Sett
2003- T+2 settlements in all stocks
2003 - Demutualisation of Exchanges
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Exist
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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Role ofCapital
MarketsMobilization 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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Functions of a Capital
MarketDisseminate information efficiently
Enable quick valuation of financial
instruments both equity and debt
Provide insurance against market risk or
price risk
Enable wider participation
Provide operational efficiency through
Simplified transaction procedurelowering settlement timings and
lowering transaction costs
Develop integration among
Real sector and financial sector
Equity and debt instruments
Long term and short term funds
Private sector and government sectorand
Domestic funds and external funds
Direct the flow of funds into efficient channels
through
Investment
Disinvestment
Reinvestment
F t t ib ti t
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Factors contributing togrowth of Indian Capital
MarketEstablishment of
Development banks &
Industrial financial institution.
Legislative measures
Growing public confidence
Increasing awareness of
investment opportunities
Growth of underwriting
business
Setting up of SEBI
Mutual Funds
Credit Rating Agencies
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Growth Pattern of the Indian Stock Market
Sr. No. As on 31st December 1946 1961 1971 1975 1980 1985 1991 1995
1No. ofStock Exchanges
7 7 8 8 9 14 20 22
2No. ofListed Cos.
1125 1203 1599 1552 2265 4344 6229 8593
3
No. of Stock
Issues ofListed Cos. 1506 2111 2838 3230 3697 6174 8967 11784
4Capital of ListedCos. (Cr. Rs.)
270 753 1812 2614 3973 9723 32041 59583
5Market value ofCapital of ListedCos. (Cr. Rs.)
971 1292 2675 3273 6750 25302 110279 478121
6Capital perListed Cos. (4/2)(Lakh Rs.)
24 63 113 168 175 224 514 693
7
Market Value ofCapital per ListedCos. (Lakh Rs.)(5/2)
86 107 167 211 298 582 1770 5564
8Appreciated valueof Capital perListed Cos. (Lak Rs.)
358 170 148 126 170 260 344 803
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Capital Markets - ReformsEach scam has brought in reforms - 1992
/ 2001
Screen based Trading through NSE
Capital adequacy norms stipulated
Dematerialization of Shares - risks of
fraudulent paper eliminated
Entry of Foreign Investors
Investor awareness programs
Rolling settlements
Inter-action between banking andexchanges
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CAPITAL MARKET
REFORMS IN INDIAThe 1990s have witnessed
the emergence of the
securities market as a major
source of finance for tradeand industry in India.
A growing number of
companies have been
accessing the securities
market rather than dependingon loans from financial
institutions / banks.
The corporate sector is
increasingly depending on
external sources for meetingits funding requirements.
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Reforms / Initiatives post 2000Corporatisation of exchange
memberships
Banning of Badla / ALBM
Introduction of Derivative products -Index / Stock Futures & Options
Reforms/Changes in the margining
system
STP - electronic contracts
Margin Lending
Securities Lending
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MARKET STRUCTURE
(JULY 31, 2005)22 Stock Exchanges,Over 10000 Electronic Terminals at
over 400 locations all over India.
9108 Stock Brokers and 14582 Sub
brokers
9644 Listed Companies
2 Depositories and 483 Depository
Participants
128 Merchant Bankers, 59
Underwriters
34 Debenture Trustees, 96 Portfolio
Managers
83 Registrars & Transfer Agents, 59
Bankers to Issue
4 Credit Rating Agencies
National Stock Exchange
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Stock Exchanges in India
National Stock Exchange
Bombay Stock Exchange
Inter-connected Stock Exchange (NEW)
Mangalore Stock Exchange
Hyderabad Stock Exchange
Uttar Pradesh Stock Exchange
Coimbatore Stock Exchange
Cochin Stock Exchange
Bangalore Stock Exchange
Saurashtra Kutch Stock Exchange
Pune Stock Exchange
OTC Exchange of IndiaCalcutta Stock Exchange
Madras Stock Exchangea
Madhya Pradesh Stock Exchange
Vadodara Stock Exchange
The Ahmedabad Stock ExchangeMagadh Stock Exchange
Gauhati Stock Exchange
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Primary MarketMarket for newissues/fresh capital
(IPOs)
New issues mkt.
Participants
Issuer
Investors
Intermediaries
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Mobilization of funds
Prospectus
Right issues and
Private
placement
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Free pricing regimeBefore 1992,Regulator of newissues was CCI (Controller of
Capital Issues)
Approval from CCI for raising funds
in primary mkt.
Timing, quantum ,and pricing of theissue were decided by the controller
New Cos can issue shares only at
par
Existing companies with substantial
reserves could issue shares at
premium
Fixed price mechanism resulted in
under pricing of many issues
After 1992, promoter and merchant
banker together decide the price of
the issue.
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The role of the Stock
Exchange
Corporate governance
Creates investment
opportunities for small
investors
Government raises capitalfor development projects
Barometer of the
economy
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Functions Of SEBI
Regulates Capital Market.
Checks Trading of securities.
Checks the malpractices in
securities market.
It enhances investor's
knowledge on market by
providing education.
It regulates the stockbrokersand sub-brokers.
To promote Research and
Investigation
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DRAWBACKS OF INDIAN STOCKMARKET:
Unethical practices.
Big irrational greed,
excessive speculation.
Lack of protection to interests
of the genuine and small
investors .
Trading is extremely thin and
restricted.
Structural and organisationalimbalance in the growth of the
stock market.
Volatility of the market has
increased over the years.
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HOW TO MAKE MONEY FROM CAPITALMARKET?
Patience,
profound
knowledge
Best guess
DiversificationPortfolio
management
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Indian Capital Market deficiencies
Lack of
transparency
Physical settlement
Variety of
manipulative
practices
Institutional
deficiencies
Insider trading
M M k t V C it l
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Money Market Vs Capital
MarketIt is for short termSupplies funds for Working
Capital
Instruments are Treasury bill, CM,
etc
Each single instrument is of large
amount
Central bank and Commercial
banks are major.
These instruments do not have
secondary market.
Transactions are on over phone
and there are no formal place
Transaction without the help ofbroker.
It is for long termSupplies funds
for fixed capitalrequirementInstruments are
shares, debentures, etc.Each
single instrument is of small
amountDevelopment bank and
insurance companies are
major.These instruments havesecondary market.Transactions
are at formal place. Eg stock
market.Transaction have to be
conducted with the help of broker.
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THANK YOU...
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