Capital Market and its significance By Deepika S R GRG School of Management Studies Coimbatore
Identify this Personality "legendary Investor”The dumbest reason in the world to buy a stock is because its going up
Financial system Financial system is the system that allows the transfer of money between savers (investors) and borrowers. Financial systems are crucial to the allocation of resources in a modern economy. They channel household savings to the corporate sector and allocate investment funds among firms; they enable households and firms to share risks.
Capital Market A capital market is a market for securities(Debt or equity), where business enterprises and governments can raise long-term funds.
The nature of capital market It has two segments It deals in long-term securities It creates dispersion in business ownership It helps in capital formation It helps in creating liquidity
Primary and Secondary Market The primary market is the market where the securities are sold for the first time. In a primary issue, the securities are issued by the company directly to investors. In secondary market investors purchase securities or assets from other investors, rather than from issuing companies themselves. The national exchanges - such as the BSE and NSE are secondary markets.
Quiz time How many stock exchanges are there in India? By what name is the building “phiroze jeejeebhoy towers” better known as? Clue….
The three I’s of the capital market Issuers Intermediaries Investors Individual Investors Corporate Investors; DIIs Foreign Venture Capital Investors FIIsThere are two main types of issuers namely Corporates issue both debt and equity securities Government issue debt securities.
Intermediaries Stock exchanges Brokers Depositories, depository participants Merchant bankers Bankers to the issue Registrars to the issue Underwriters Portfolio managers Debentures trustees Credit rating agencies
CDSL & NSDL National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) are depositories. Depositories hold various securities like shares in electronic form. A DP (Depository Participant) is like an agent of these depositories. Investors open their account with depositories via depository participants. They dont deal directly with the depositories. It is mandatory for all listed companies to have their securities admitted for dematerialisation with both the depositories viz CDSL & NSDL.
Demat & Trading Account Demat Account : Account where your Shares are stored in electronic form . Trading Account : An account which is used to place orders for Buying and Selling of shares . when you buy shares, amount is debited from your trading Account and shares are stored in your Demat account . When you Sell shares, amount is credited to your trading account and shares are taken away from your Demat Account and sold in the stock market.
Why open a Demat account? Auto Credit - Shares arising out of bonus, split, consolidation, merger , IPO are automatically credited into the Demat account of the investor. Lower Charges - Transactions involving physical securities are costlier than those involving dematerialised securities (just like the transactions through a bank teller are costlier than ATM transactions). Quick Transfer- Securities can be transferred at an instruction immediately. Elimination of Risks - Risks like forgery, thefts, bad delivery, delays in transfer etc, associated with physical certificates are eliminated. Convenience-Any change in address or bank account details can be electronically intimated to all companies in which investor holds any securities, without having to inform each of them separately.
Reforms in Indian Securities Markets Creation of Market Regulator - SEBI was established in 1992, with the aim of protecting the interests of investors, promoting and regulating the securities market. Screen Based Trading - Open out-cry system replaced by on-line fully automated screen based trading system (SBTS) Reduction of Trading Cycle - settlement period was reduced progressively from T+5 to T+3 days. From April 2003 onwards, T+2 days settlement cycle is being followed.
Reforms in Indian Securities Markets Equity Derivatives Trading – To assist market participants in managing risks better through hedging, speculation and arbitrage, the market presently offers index futures, index options, single stock futures and single stock options. Clearing Corporation - National Securities Clearing Corporation Ltd. (NSCCL), commenced its operations in April 1996. Globalisation - Indian companies have been permitted to raise resources overseas through issue of ADRs, GDRs and FCCBs. FIIs have been permitted to invest in all types of securities, including government securities and tap the domestic market.
Reforms in Indian Securities Markets Direct Market Access - DMA allows brokers to offer their respective clients, direct access to the Exchange trading system through the broker’s infrastructure without manual intervention by the broker Launch of Securities Lending & Borrowing Scheme - Allows market participants to take short positions effectively with less cost. Launch of Currency Futures ASBA: Application Supported by Blocked Amount Launch of Interest Rate Futures Launch of mobile trading for all investors
World’s largest stock exchanges and their market value New York Stock Exchange (Dow Jones) : $14.2 trillion Tokyo Stock Exchange(NIKKEI) : $3.32 trillion American stock exchange (NASDAQ) : $4.68 trillion London Stock Exchange (FTSE) : $3.26 trillion Shanghai Stock Exchange : $2.35 trillion Hong Kong Stock Exchange (Hang Seng) : $2.25 trillion Toronto Stock Exchange (TSX) : $1.912 trillion Frankfurt Stock Exchange (DAX) : $1.18 trillion Bombay Stock Exchange (Sensex) : $1.07 trillion National Stock Exchange of India(NIFTY) :$0.98 trillion
Stock markets & the world economy The performance of all the world’s stock markets is directly responsible for a significant amount of the world’s economic condition – whether it be healthy, ailing, or trending sideways. In general, stock market growth is a leading indicator that the state of an economy is flourishing, while declining trends indicate of economic slowdown. Commentators suggest that stock markets often predict what will happen in the economy of that country around six months later.
Investments: What u cant believe, But true…If one would have bought 100 Wipro shares of Face Value Rs 100 in 1980…. 1981 , 1 : 1 bonus = 200 shares1985 , 1 : 1 bonus = 400 Today’s rate is Rs. 4501986 split to Rs 10 = 4000 Your portfolio would have been Rs. 432 crore1987 , 1 : 1 bonus = 80001989 , 1 : 1 bonus = 160001992 , 1 : 1 bonus = 320001995 , 1 : 1 bonus = 64000 Current year dividend1997 , 2 : 1 bonus = 192000 Rs. 4 per share. i. e: 4*96,00,000 = 3.84 crore1999 split to Rs 2 = 9,60,0002004 , 2 : 1 bonus = 28,80,0002005 , 1 ; 1 bonus = 57,60,0002010 3 : 2 bonus = 96,00,000
Advantages of investing in shares Inflation rate is higher than commercial banks interest rate but lower than equity price appreciation. You are protected from the eyes of the public. Nobody knows your worth except you tell him/her. In other investments, people can easily look at the assets of the business or your property (real estate) and come up with approximate worth of it. The rate of growth is far beyond the bank interest rate. Dividend -This is cash reward given to share holders as part of the profit made by the company at the end of each financial year. Bonus issues -This is free shares given to existing shareholders.
How spot market is different from future market? Particulars Spot market Future market No. of shares 2000 2000Market value of Tata Rs. 260 Rs.260motors on 14/02/12 Investment Rs. 5,20,000 Rs. 82,000MV of Tata motors Rs. 285 Rs. 285 on 15/02/12 ROI 9.6% 60%
Conclusion Exposure to stocks is only a meagre 1.25 per cent as against 35- 40 per cent in developed economies. This is one of the lowest in the world. while India has over 75 crore mobile phone connections, the country has less than 1.5 crore depository accounts. India has got the highest percentage of savings in the world with about 36 per cent. About 64 per cent of the savings in India goes to banks in fixed deposits and 6 per cent to the capital markets.
young person, by virtue of youth and the prospects of a bright career ahead, has a higher risk-taking capacity, and so can afford to invest larger amounts in assets that carry higher risk but much better returns. Compared with the returns from various assets like bank deposits and company deposits, over long terms, equities have consistently delivered higher returns.
Quiz time…What is the current value of Sensex and Nifty?
How many of you are ready to invest in stock market?
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