The Indian Capital Markets This Presentation aims at disseminating information about & giving an Insight into the participants & their workings in the Capital Markets Chrys Gonsalves RR Financial Consultants Ltd. 9224675432 firstname.lastname@example.org
Table of Contents What is a Capital market? The Indian Capital Markets What is Debt / Equity? Case Study 01: My Moms Chocolate Shoppe Analysis of the Balance Sheet Case Study 02: HFCL Shareholding Pattern Raising Capital Term sheets: Bonds / Debentures Term sheets: Issue Shares through IPO Case Study 03: Reliance IPO Case Study 04: NABARD Bond Issue Lenders & Borrowers Liquidity Crisis Capital Market Participants The Stock Exchanges Primary Issues V/s Secondary Markets Listing of Securities Sensex & the Wholesale Debt Market Sensex V/s Bond Yields Investment Havens Case Study 05: Mutual Funds Case Study 06: IndiaBulls REITS What are Portfolios Case Study 07: Reliance Mutual Fund Case Study 08: SIDBI VC Fund History of the Capital Markets Current Market Scenario What to look out For Case Study 09: Sample Research Reports Some Investment Gurus Some Fund Managers Some Celebrities Some Politicians Visit some Websites Career Options
What is a Capital Market? A comparison between the Capital Markets & the Fish Market A Fish Market A Capital Market A Fish Market is a marketplace for fish, where fishermen can raise money by selling their fish The capital market is the marketplace for securities, where companies and governments can raise capital/money by selling or pleading their assets
The Indian Capital Markets Cash Flows between the Firm and the Capital Markets Total Value of the Firm to investors in the Financial Markets Total Value of Firms Assets A. Firm Issues Debt/Equity Securities B. Firms Assets Current Assets Fixed Assets Financial Markets Short Term Debt Long Term Debt Equity Shares E. Reinvested Cash flows F. Dividend & Debt Payments C. Cash Flows from Firms Assets D. Government & Other Stakeholders Firm Issues Securities to raise Cash Firm Invests in Assets Firms Operations Generates Cash Flow Cash is paid to government as taxes. Other stakeholders may receive cash Re-invested cash flows are invested in firm Cash is paid out to investors in the form of interest and dividends
What is Debt & Equity? Debt is an obligation to pay interest. Equity is a share in a company DEBT CAPITAL A basic loan is the simplest form of debt It consists of an agreement to lend a principal sum for a fixed period of time, to be repaid by a certain date. Debt capital differs from equity or share capital because subscribers to debt capital do not become part owners of the business, but are merely creditors, and the suppliers of debt capital usually receive a contractually fixed annual percentage return on their loan, and this is known as the coupon rate EQUITY CAPITAL Equity capital generally is composed of funds that are raised by a business in exchange for an ownership interest in the company. In addition to taking an ownership interest in the company, equity investors may also participate as a member of the company's board of directors and take an active role in managing your company.
Case Study – 01 My Moms Chocolate Shoppe My Mom, the Borrower. The Bank & my Dad, the Lenders My mom issues Security on Fixed Assets for Loan Bank Loan of Rs. 50,000 @ 14% p.a. for 5 years Assets Repayment of Interest Government (CBDIT) Tax Issuance of Shares Assets 5000 Equity Shares of Face Value Rs. 10 Issued to my father Payment of Dividend Dividend Re-investment of cash flows (Internal Accruals) Earnings Interest Tax Dividend
Analysis of the Balance Sheet A balance sheet is often described as a snapshot of a company's financial condition. The balance sheet is divided into two parts that, based on the following equation, must equal (or balance out) each other. The main formula behind balance sheets is: The three parts are represented under the heads SOURCES OF FUNDS & APPLICATION OF FUNDS where both sides must balance out. assets = liabilities + shareholders' equity SOURCES OF FUNDS APPLICATION OF FUNDS
CASE STUDY – 02 HFCL Balance Sheet Analysis of Hindustan Futuristic Solutions Ltd.
Share Holding Pattern It refers to the Number of Shares & percentage of shares held by Investors in a Company
Raising Capital Various modes of raising capital through Debt and Equity DEBT Loans Bonds Debentures Commercial Papers Certificate of Deposits Inter-Corporate Deposits External Commercial Borrowings Foreign Currency Convertible Bonds EQUITY Public Issue (IPO) / Rights Issue Private Placement Qualified Institutional Placement Bonus Issue Employee Stock Options (ESOPS) Warrants ADR/GDR
TERMSHEETS:Bonds / Debentures A Term sheet is a basic Performa that gives a gist of security Issued
TERMSHEETS: Issuing Shares through IPO A Snapshot of the Issue
CASE STUDY – 03 Reliance Power IPO Breaking News during the Public Issue of RELIANCE POWER Power on to India On!!!! Feb 24,2008 Reliance Power Bonus - Declares 3:5 Bonus Feb 17,2008 Reliance Power Bonus - To issue Bonus Shares Feb 11,2008 Reliance power Down by 21 percent on the Listing day Feb 11,2008 Reliance Power is a Big Flop on listing day Feb 08,2008 Reliance Power IPO Listing Details Jan 31,2008Reliance Power IPO Allotment Jan 28,2008 Reliance Power IPO Money Refund Jan 19,2008 Reliance Power IPO Listing Date Jan 18,2008 Reliance Power IPO Final subscription Details Jan 18,2008 Reliance Power IPO Retail portion subscribed by 9 times Jan 17,2008 Reliance Power IPO subscribed by 24.29 times on the end of 3rd day Jan 16,2008 Reliance Power IPO Subscribed by 13 times on the 2nd day Jan 15,2008 Reliance Power IPO subscribed 9.5 times on the first day
CASE STUDY – 04 NABARD Bond Issue
Lenders & Borrowers The Capital Markets basically constitute of two members, i.e. the Lenders & Borrowers
The Capital Markets basically constitute of two members, i.e. the lenders & Borrowers, without which the markets wouldn’t function.
Lending & Borrowing of capital is nothing but supply & demand of money
The function of lending & borrowing should balance out itself to maintain growth & stability in the economy
Following indications are affected of a mismatch in lending & borrowing
Liquidity Growth Cost Of Capital Inflation Credit Gold Prices Bond Yields Interbank Call Rates Market Sentiment
Lenders & Borrowers
Liquidity Crisis The Liquidity Matrix SENSEX / NIFTY WHOLESALE DEBT MARKET Positive returns (gain) At high premiums Low bond yields Low interest rates Bonds traded at premiums LIQUIDITY } Negative returns(loss) Shares traded at low premiums or at discount High bond yields High interest rates Bonds traded at discounted prices RISK/RETURN
Capital Market Participants In Inclusive list of Participants in the Indian Capital Primary & Secondary Market Credit Rating Agencies Private Equity , Hedge & Venture Capital Funds Foreign Institutional investors Mutual Funds Reserve Bank of India Insurance Companies The Depository Participants Securities Exchange Board of India The Stock Exchanges Reserve Bank of India Primary Dealers Public & Private Financial Institutions Regional Rural Banks Co-operative Banks Commercial Banks Public Sector Undertakings Provident Fund Trusts + EPFO Corporates
The Stock Exchanges Acorporation which provides "trading" facilities for stock brokers The role of stock exchanges; Raising capital for businesses Mobilizing savings for investment Facilitating company growth Redistribution of wealth Corporate governance Creating investment opportunities for small investors Government capital-raising for development projects Barometer of the economy Remember the Fish Market!!!
Primary Issue V/s Secondary Market The two types of markets in the Indian capital market Primary Issue A Primary Issue is a fresh issue of securities to the investor at a fixed price (issue price). Secondary Market A Secondary Market is where the securities can be traded at a premium or discount from the issue price Company Listed shares Issuance of shares All classes of investors All classes of investors
Listing of Securities Layout/Process of issuing Debentures/Bonds Issuing Company Merchant Banker Credit Rating Agency appoints appoints Issues who rates the Instrument appoints Listed on through Placement Agent Debenture Trustee Stock Exchange with the who trades on the whose security lies with the Investor SEBI REGULATIONS
SENSEX & The Wholesale Debt Market SENSEX is a Basket of Stocks & WDM is a platform to trade bonds on BSE SENSEX
Sensex is an Index where a group/portfolio of stocks are included
These stocks are mainly large cap & said to be an interpretation of the economy
That is if the Sensex performs well it would directly mean the Economy is good
There are 50 stocks in the SENSEX Index
The SENSEX ‘Basket’ can be traded on Bombay Stock Exchange just as the NIFTY can be traded on the National Stock Exchange
The Wholesale Debt Market also known as the WDM is a platform where bonds are listed & traded in order to buy or sell.
All Bonds these days are listed on the WDM because the WDM just like the SENSEX is a part of the BSE.
The BSE is a recognizes & well respected Stock Exchange across the world.
Sensex V/s Bond Yields A Comparison between the performance of Sensex & Bond Yields
Investment Havens Various Options for Investor to Invest in 7 Property 6 Stocks & Equity Funds RETURNS 5 Hybrid Funds 4 Debt Funds 3 Liquid Funds 2 Bank Fixed Deposits & Govt. Bonds 1 National Saving Schemes & Post office Saving Schemes
CASE STUDY – 05 Mutual Funds Mutual Fund is a Pool of Money that is invested in a portfolio of stocks
CASE STUDY – 06 Indiabulls REITs A recent Issue of REITs in Singapore due to tight liquidity in India UNITHOLDERS Distribution In Form Of Dividend & Other Distributions Investment In REIT Managers Fee Trustees Fee REAL ESTATE INVESTMENT TRUST REIT FUND MANAGERS REIT TRUSTEES Management Services Act On Behalf Of Unit holders Ownership Of Assets (Vested In Trustee) Rental Income Property Management Company Fee POOL of REAL ESTATE ASSETS PROPERTY MANAGEMENT COMPANY Property Management Services
What are Portfolios? A Statement showing Investments A Portfolio is a Statement of various groups of Securities that an Investor/Lender has invested in.
CASE STUDY – 07 Reliance Mutual Fund - DEBT A Portfolio of Bonds/Debentures in a Debt Fund
CASE STUDY – 07 Reliance Mutual Fund -EQUITY A Portfolio of Stocks in an Equity Fund
CASE STUDY – 08 SIDBI VC Fund A Portfolio of companies where SIDBI VC holds an Equity Stake
History of the Capital Markets
Current Market Scenario
What to look out for as a Participant Various Indicators to watch out for in a CapitalMarket Liquidity in the Debt & Equity Markets Growth Rate of the Country & various industries Inflation Rate Credit Ratings (Weather upgraded or downgraded) Gold Prices Bond Yields Interbank Call Rates Market Sentiment Oil prices Commodity Prices Forex Reserves & Rupee to Dollar Prices Interest rates Lending & Borrowing Capacity across industries Global Indices
CASE STUDY – 09 Sample Research Reports Some research reports published by RR Financial, a Domestic Investment Bank.
Some Investment Gurus Some of the most remarkable investors who have seen the test of time. David einhorn Warren Buffet David Einhorn Donald Trump
Some Fund Managers The Background of a Fund Manager & the experience he brings with him Pankaj Gupta – Fund ManagerPankaj has done his B.Com (Hons), PGDBM, C.S and PGDBM IIM – Lucknow. He has experience of over 4 years in Mutual Fund, Equity Research and Corporate Banking. His last assignment was ICICI Bank Ltd. and has been with SBI Funds Management Pvt. Ltd. since December 2005. JayeshShroff – Fund ManagerJayesh has done his B.Com and PGD (MBFS) – ICFAI. He has experience of over 5 years as Fund Manager. He also has wide experience in investment banking activities including M&A activities, venture capital funding, preparation of business plans, project reports etc. His last assignment was with BOB Mutual Fund and has been with SBI Funds Management Pvt. Ltd. since March 2006. VivekPandey – Fund ManagerVivek is a Science graduate and has done his CFA from ICFAI. He has about 7 years of experience in the industry. He is currently placed in Investment Department as a Junior Fund Manager since June 2007.
Some Celebrities A Quiz: Tick the right option Salman Khan Aamir Khan Shah Rukh Khan Investor Not an Investor Investor Not an Investor Investor Not an Investor
Some Politicians A Quiz: Tick the right option P. Chidambaram L. K. Advani ShibuSoren The Good The Bad The Ugly
Visit some Websites Websites that would give you an incisive knowledge about the capital markets www.bondclass.com www.takeovercode.com www.sebi.gov.in www.indiabondwatch.com www.researchandmarkets.com www.nenonline.com www.vcccircle.com www.rbi.org.in www.dnb.co.in www.india.smetoolkit.org/india www1.ximb.ac.in/users www.eventsindia.com www.caclubindia.com www.techno-prenuer.com www.indiape.com www.privateequity.com www.pehub.com www.investing.businessweek.com www.amfi.com www.mint.com www.money.cnn.com www.companylaw.com
Career Options www.careerage.com MBA Finance Chartered Accountant – ICAI Company Secretary – ICSI Cost & Works Accountant - ICWAI Chartered Financial Analyst - ICFAI Securities LAW – Government Law College Tax Consultant Debt/Equity Dealer – FTKMC/ BSE Thank You