The Indian Capital Markets

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The Indian Capital Markets

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

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