Capital market of India

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A basic understanding of the history, past players and components of the Indian stock market.

Published in: Business, Economy & Finance

Capital market of India

  1. 1. BASIC OF CAPITAL MARKET PRESENTED BY: Anup Chakraborty 9811222713 anupchakraborty@hotmail.com
  2. 2. BEGINNING OF INDIAN CAPITAL MARKET The origination of the Indian securities market may be traced back to 1875, when 22 enterprising brokers under a Banyan tree established the “Native shares and stock broker’s Association” which later became the “ Bombay Stock Exchange” (BSE). Over the last 125 years, the Indian securities market has evolved continuously to become one of the most dynamic, modern and efficient securities markets in Asia. Today, Indian markets conform to international standards both in terms of structure and in terms of operating efficiency.
  3. 3. 1875
  4. 4. Membership Certificate
  5. 5. THE BEGINNING The Seed were probably first sown by the “East India Company” in 18th Century. Promissory Notes & Debt Instruments. 19the centaury saw Indian Enterprises flourish and merchants and speculators of western India trading on loan securities and shares of companies.
  6. 6. THE FIRST BIG BULL 1860-61, demand for cotton increased due to civil war in America and price was pushed up significantly. 1865: 31 banks, 8 land reclamation companies, 20 insurance companies, 62 joint stock companies. FIRST BIG BULL PREMCHAND ROYCHAND In speculative trading
  7. 7. PREMCHAND ROYCHAND  Known as the Cotton king and the Bullion king.- Floated Bank of Bombay. Back Bay Reclamation shares prices pushed up to Rs.50,000. 1865: American Civil war ended, cotton prices collapsed, companies collapsed and market crashed. For the first time in India Broker became a dirty word. Roychand lost all his money.
  8. 8. FIRST FIVE STOCK EXCHANGES 1875: “ The Native Share and Stock broker’s Association” formed with 318 members and with a fee of Rs.1. In 1928 present plot acquired and building constructed in 1930. 1894: Second Stock Exchange at Ahmedabad. 1908 : Third, Calcutta Stock Exchange. 1937 : Madras Stock Exchange. 1947 : Delhi Stock Exchange.
  9. 9. 1930
  10. 10. SOME BIG NAMES 1950-60: Top speculators: Hathibhai, favourite was TISCO, Mahindra Mansukh in 1960s, his favourite was Standard Mill etc. The other names to reckon with were, Subhash Chand and Manik Chunni Lal. 1970: Nationalization of banks and industries. and enactment of Foreign Exchange Regulation Act. (FERA). 1979: Emergency.
  11. 11. RELIANCE INDUSTRIES  1980: Retail interest in capital market boosted through Dhirubhai Ambani’s Reliance Industries Ltd.  1991: Priminister Narasimha Rao and Finance Minister, Manmohan Singh started Privatisation,Liberalisation and Globalisation. to unshack le the I ndian Economy.
  12. 12. HARSHAD MEHTA  I n a near r eplica of Pr emchand Roychand, hundr ed year s ago, H ar shad M ehta and his associates bor r owed money fr om bank and used it to push up the shar e pr ices.  I n June 1991 Sensex was 1170 and in Apr il 1992 it was at 4467.  The Sensex fell to 2800 in one week after the scam br ok e.
  13. 13. SBTS in NSE National Stock Exchange star ted the scr een based tr ading in Capital M ar k et (Equities) segment in November 1994 and oper ations in Der ivatives segment commenced in June 2000. This has br ought about a r evolution to the I ndian stock mar k et scenar io.
  14. 14. KETAN PAREKH 2001: Over the years, also, the direction of equity investment has changed so radically as to be unrecognisable. Old blue chips- Telco, Tisco, ITC, HLL all- have been discarded for scrips in the ICE (Infotech, Communications, Entertainment) sectors. Infosys, Zee, Wipro and Satyam have become the new touchstones of punters everywhere. The circular trading of KP and his associates had taken the prices of K-10 shares to dizzying hights and than came the DOT COM bust and the crash. Shares traded at Rs.3000/4000 now trades at Rs. 12/20 etc. HFCL, Global Telesystem, Pentafour, DSQ etc.
  15. 15. Bull Run since April, 2003 Transparency, competitiveness and equal opportunity . to all market participants has been the driving philosophy behind all the development and regulatory initiatives of SEBI today. The robust economy, ever increasing FII investment, bright economic future have taken the market to a robust growth path. Today Sensex is above 9000 mark and there is no relenting in the fund flow. There are 498 Foreign Institutional Investors with a net investment of approximately $15bn. There are now 34 mutual funds offering close to 380 different types of schemes, which are as diversified and up to date as in any other part of the world. During the year2005, the sensex surged 42% to end at a new high of 9398, while the Nifty jumped 36% to end at 2837.
  16. 16. SENSEX MOVEMENT SINCE 1998 AND THE PRESENT BULL RUN
  17. 17. World Capital Market Development In Antwerp, Belgium, traders gathered together in 1531 to speculate in shares and commodities. This was the world's first Stock Exchange and it was born in a city that was known for shipping and trading. Hamburg, in Germany, followed in 1558. Amsterdam came next, in 1619. London and Paris also set up Exchanges sometime near the end of the 17th century.
  18. 18. NYSE That all changed on May 17, 1792 when two dozen Wall Street brokers signed an agreement to trade only with one Another. Known as the Buttonwood Agreement, this two sentence document was signed under a Buttonwood tree at 68 Wall Street where the brokers met informally. This agreement would evolve into today’s New York Stock Exchange. The NYSE is today one of the most powerful exchanges in the world.
  19. 19. The Roaring Twenties and the Great Fall. After the First World War (1914-1919), there was a period of great economic prosperity. In the 1920s, many of the Dow Jones Industrial Average (DJIA) stocks rose more than five-fold in value. All this came to a spectacular end. The crash of 1929 in New York, brought misery to one and all. It is said that brokers and bankers jumping out of skyscrapers was a common sight. On October 24, 1929, (Black Thursday) the Dow lost 30 per cent in value, The mayhem ended in mid-1932, with the Dow down a whopping 90 per cent in value from its peak in 1929. The drop in stocks was worth $30 billion, which was about 30 per cent of the GDP!
  20. 20. Rise, fall and rise again. In the 20th century, a continuing surge in volume has required Exchanges to embrace more sophisticated technology. Screen-based trading has become the order of the day though, of course, the NYSE still follows a variation on the open outcry system with specialists. The capital markets have mirrored the shifts in the world eeconomy. Thus the Far East and Japan now boast some of the leading Exchanges. Emerging market investing has become a field for specialists. And some investors such as Warren Buffet, Peter Lynch, Mark Mobius- have even become cult figures.
  21. 21. CAPITAL MARKET INTRODUCTION
  22. 22. Definition of Stock & Shares Share or Equity represents part of an ownership of a business. So as a shareholder you own a piece of the action that happens in that business. Why would you want a piece of the action? For the rewards of course. As a shareholder you have a right over
  23. 23. Bull & Bear Market When economic indicators point to a healthy and growing economy, companies are making money, the future looks good, and people have more money to invest. When this happens, stock prices on the whole generally rise, which is called a bull market. In contrast, when the economy is shrinking, businesses are not making as much money, and people are losing their jobs and have less money left over after buying necessities, stock prices on the whole will be falling. This is known as a bear market.
  24. 24. What determines Stock Price? In the short run, the market is a voting machine-- reflecting a voter-registration test that requires only money, not intelligence or emotional stability. The buyer and seller determines the price in short run, big buyers push up the price and big sellers bring down the price. But in the long run, the market is a weighing machine. The good performance of the company continuously attract more and more buyers and that takes the price to higher and higher level, setting a trend.
  25. 25. Initial Public Offerings A company's first sale of stock to the public. Securities offered in an IPO are often, but not always, those of young, small companies seeking outside equity capital and a public market for their stock. Investors purchasing stock in IPOs generally must be prepared to accept very large risks for the possibility of large gains. In an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), best offering price and time to bring it to market. Also referred to as a "public offering".
  26. 26. The Book Building Process The Issuer who is planning an IPO nominates a lead merchant banker as a 'book runner'. The Issuer specifies the number of securities to be issued and the price band for orders. The Issuer also appoints syndicate members with whom orders can be placed by the investors. Investors place their order with a syndicate member who inputs the orders into the 'electronic book'. This process is called 'bidding' and is similar to open auction. A Book should remain open for a minimum of 5 days. Bids cannot be entered less than the floor price. Bids can be revised by the bidder before the issue closes. which is in the process of maturing.
  27. 27. Determination of Price  On the close of the book building period the 'book runner evaluates the bids on the basis of the evaluation criteria which may include -  Price Aggression  Investor quality  Earliness of bids, etc.  The book runner and the company conclude the final price at which it is willing to issue the stock and allocation of securities.  Generally, the number of shares are fixed, the issue size gets frozen based on the price per share discovered through the book building process.  Allocation of securities is made to the successful bidders.  Book Building is a good concept and represents a capital market
  28. 28. Difference between shares offered through book building and offer of shares through normal public issue.  Price at which the securities are offered/allotted is known in advance to the investor.  Demand for the securities offered is known only after the closure of the issue.  Payment if made at the time of subscription wherein refund is given after allocation  Price at which securities will be offered/allotted is not known in advance to the investor. Only an indicative price range is known .  Demand for the securities offered can be known everyday as the book is built.  Payment only after allocation.
  29. 29. INDEX WE HAVE TWO PRIME INDEXES- SENSEX FOR BSE AND S&P CNX NIFTY FOR NSE. NIFTY HAS 50 shares that basically represent the broader market across sectors. The base value of NIFTY was 1000 on the start year of Nov.3, 1995. First compiled in 1986, SENSEX is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies. The base year of SENSEX is 1978-79 and the base value is 100. The Index was initially calculated based on the "Full Market Capitalization" methodology but was shifted to the free-float methodology with effect from September 1, 2003.
  30. 30. SENSEX HISTORY First compiled in 1986, SENSEX is a basket of 30 constituent stocks representing a sample of large, liquid and representative companies. The base year of SENSEX is 1978-79 and the base value is 100. The Index was initially calculated based on the "Full Market Capitalization" methodology but was shifted to the free-float methodology with effect from September 1, 2003.
  31. 31. SENSEX Constituents Associated Cement Company Ltd. Bajaj Auto Ltd. Bharat Heavy Electricals Ltd. Bharti Tele Ventures Ltd. Cipla Ltd. Dr Reddy's Laboratories Ltd. Grasim Industries Ltd. Gujarat Ambuja Cements Ltd. HDFC HDFC Bank Ltd. Hero Honda Motors Ltd Hindustan Lever Ltd Bank Ltd. Infosys Technologies Ltd. ITC Ltd. Larsen & Toubro Limited Maruti Udyog Ltd. National Thermal Power Corpn. ONGC Ltd. Ranbaxy Laboratories Ltd. Reliance Energy Ltd. Reliance Industries Ltd. Satyam Computer Services Ltd. State Bank of India Tata Consultancy Services Limited Tata Motors Ltd. Tata Power Co. Ltd. Wipro Ltd. Information
  32. 32. S&P CNX Nifty – Constituents’ List  Bajaj Auto  Bharti Tele-Ventures  Bharat Heavy Electricals Limited  Bharat Petroleum Corporation  Cipla  Dabur India  Dr. Reddy's Laboratories  GAIL  Glaxo Smith Kline Pharmaceuticals  Grasim Industries  Gujarat Ambuja Cements  HCL Technologies  HDFC Bank  Hero Honda Motors  Hindustan Unilever  Hindustan Petroleum Corporation  ICICI Bank  Infosys Technologies  Indian Petrochemicals Corporation  I T C  Jet Airways  Larsen & Toubro  Mahindra & Mahindra  Maruti Udyog  MTNL  ONGC  OBC  Punjab National Bank  Ranbaxy  Reliance Energy  Reliance Industries Ltd.  Steel Authority of India Ltd.  Satyam Computer  State Bank of India  SCI  Sun Pharmaceutical  Tata Group  Videsh Sanchar Nigam Limited  Wipro  Zee Telefilms Ltd.
  33. 33. S&P CNX Nifty HISTORY S&P CNX Nifty is a well diversified 50 stock index accounting for 23 sectors of the economy. CNX ensures common branding of indices, to reflect the identities of both the promoters, i.e. NSE and CRISIL. Thus, 'C' stands for CRISIL, 'N' stands for NSE . The S&P prefix belongs to the US-based Standard & Poor's Financial Information Services. The base value of S&P CNX Nifty was set to 1000 on the start date of November 3, 1995.
  34. 34. Major indices in NSE S&P CNX Nifty CNX Nifty Junior CNX 100 CNX CNX 500 CNX Midcap S&P CNX Defty CNX Midcap 200 CNX IT Sector Index CNX Bank Index CNX FMCG Index CNX PSE Index CNX MNC Index CNX Service Sector Index S&P CNX Industry indices Customised Indices CNX Energy Index CNX Pharma Index
  35. 35. Major indices of BSE BSE CG BSE CD BSE FMCG BSE HC BSE IT BSE METAL BSE OIL&GAS BSE-100 BSE-200 BSE-500 BSEMIDCAP BSESMLCAP BSE TECk BSE PSU BSE AUTO BSE BANKEX SENSEX
  36. 36. PUTTING YOUR MONEY TO WORK
  37. 37. Financial Planning and Investment Strategy When you invest any money, you need to assess your financial situation and goals, then develop an investment plan. The first step is to carefully onsider your present financial situation. How much money do you need for routine expenses, such as food, housing, clothing, health care, transportation, and entertainment? How much have you set aside for emergencies, such as accidents, illness, and unemployment? And how much do you need to save for big items such as a house, college expenses, and retirement?
  38. 38. Risk-Reward Relationship With investing, typically the less risk you take, the less money you make, but the more certain it is. For example, a savings account in a bank earns a very low return but is very safe. These types of low-risk, low-return investments are especially appropriate for short-term or medium-term investments, for when you are going to need the money anytime from this week to several years from now. For longer-term investments, several years or more, the stock market as a whole has historically given the best rates of return. There are two ways to make money from stocks: dividends and capital gain. Dividends are checks that shareholders get, usually every quarter, as their share of the company’s profits. Capital gain is when you sell your shares at a higher price than what you paid for them.
  39. 39. Types of Stock INCOME STOCKS pay unusually large dividends that can be used as a means of generating income without selling the stock, but the price of the stock generally does not rise very quickly. BLUE-CHIP STOCKS are issued by very solid and reliable companies with long histories of consistent growth and stability. Blue-chip stocks usually pay small but regular dividends and maintain a fairly steady price throughout market ups and downs.
  40. 40. GROWTH STOCKS are issued by young, entrepreneurial companies that are experiencing a faster rate of growth than their general industries. These stocks normally pay little or no dividend because the company needs all of its earnings to finance expansion. Since they are issued by companies with no proven track record, growth stocks are riskier than other types of stocks but also offer more appreciation potential. CYCLICAL STOCKS are issued by companies that are affected by general economic trends. The prices of these stocks tend to go down during recessionary periods and increase during economic booms. Examples of cyclical stock companies include automobile, heavy machinery, and home building. DEFENSIVE STOCKS are the opposite of cyclical stocks. Defensive stocks, issued by companies producing staples such as food, beverages, drugs, and insurance, typically maintain their value during recessionary periods.
  41. 41. FACTS ABOUT NSE & BSE No of Cos. Listed :1025 No of trading Cos. : 886 Daily turnover : 7000 cr. Market Cap : 23 lacs. cr. Established in April 1993. F&O started in June, 2000. Daily F&O T/o :17,500 cr. Mr. Ravi Narian, MD, CFO. Mr. S. B. Mathur, Chairman. No of Cos. Listed :7199 No of tradingCos. : 2552 Daily turnover : 4000 cr. Market Cap : 25 lacs. cr. Established in 1875. Mr. Rajnikant Patel, MD,CEO. Mr. Jagdisk Capoor, Chairman.
  42. 42. DEPARTMENTS OF A BROKING HOUSE.  Dealing or Trading Department.  Settlement  EDP  Depository Participants.  Risk Management  Compliance  Equity Research  Margin Trading  Commodity
  43. 43. CASH MARKET Introduction to Cash Market. Terminologies of the Cash Market: What is EQUITY/ STOCK, Settlement, Face Value, Dividends, Bonus Shares, Book Closures, Ex- Dividend, Splitting of stock. Non Delivery Period, intraday exposure, turnover, client wise, scrip wise volume etc. Brokerage- What is brokerage. *Types of brokerage, speculative and delivery. *Brokerage Slabs. *Brokerage for HNI’s and retail clients. *Brokerage for Sub-brokers.
  44. 44. MARKET PARTICIPANTS & NATURE OF PARTICIPATION Day Trading- Short Selling, Long Buying etc. Investments- Long Term and Short Term investments. Participants- Day Traders, Investors, HNIs, Mutual Funds, FIIs, Banks etc. Their role in the market as a whole.
  45. 45. DERIVATIVES
  46. 46. WHAT IS DERIVATIVES?  DEFINITION  TYPES OF DERIVATIVES, OPTIONS AND FUTURES.  USAGES: FOR HEDGING, SPECULATING, LIVERAGING ETC  INDEX DERIVATIVES  STOCK DERIVATIVES  RISK AND RETURN IN DERIVATIVES.
  47. 47. DERIVATIVES DERIVATIVES OPTIONS FUTURES
  48. 48. OPTIONS OPTIONS CALL OPTION PUT OPTION STOCK CALL OPTION INDEX CALL OPTION STOCK PUT OPTION INDEX PUT OPTION
  49. 49. PARAMETERS OF OPTIONS PARAMETERS UNDERLYING STOCK PRICE DAYS TO EXPIRY VOLATILITY SIZE OF CONTRACT INTEREST RATE DIVIDEND
  50. 50. FUTURES 1) WHAT IS FUTURES? 2) RISK AND REWARD DYNAMICS OF FUTURES. 3) DIFFERENCE FROM OPTIONS & SIMLIARITY WITH STOCKS. 4) FACTORS AFFECTING FUTURE PRICES. 5) STRATEGIES COMBINED WITH OPTIONS. 6) WHO SHOULD USE IT AND HOW?
  51. 51. BACKGROUND * MINISTRY OF FINANCE SEBI EXCHANGE BROKERS SUB BROKERS CLIENTS. * ECONOMY INDUSTRY COMPANY MARKET. ROLE OF BROKER
  52. 52. CUSTOMER SERVICE EFFICIENT CUSTOMER SERVICE IS THE ULTIMATE MANTRA IN THIS BUSINESS.

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