Stock Exchange Reforms In India


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  • Stock Exchange Reforms In India

    1. 1. Stock Exchange Reforms in India Prepared By: Vikram B. Thadeshvar Pune. [email_address]
    2. 2. Stock market and how it works <ul><li>Stock  means ownership. As an owner, you have a claim on the assets and earnings of a company as well as  voting rights with your shares. </li></ul><ul><li>Stock is equity , bonds are debt . Bondholders are guaranteed a return on their investment and have a higher claim than shareholders. </li></ul><ul><li>SEBI (Security and Exchange Board of India) having a control over all stock exchanges all over India. </li></ul><ul><li>This is generally why stocks are considered riskier investments and require a higher rate of return. </li></ul><ul><li>Stock prices change according to supply and demand. There are many factors influencing prices, the most important of which is earnings . </li></ul><ul><li>The two main types of stock are  common and preferred . It is also possible for a company to create different classes of stock. </li></ul>[email_address]
    3. 3. (Bombay Stock Exchange) <ul><li>Established as &quot;The Native Share & Stock Brokers' </li></ul><ul><li>Association&quot; in 1875. </li></ul><ul><li>Index of 30 stocks representing 12 major sectors. </li></ul><ul><li>World's number 1 exchange in terms of the number </li></ul><ul><li>of listed companies. </li></ul><ul><li>World's 5th in transaction numbers. </li></ul><ul><li>The market capitalization as on December 31, 2007 stood at USD 1.79 trillion . </li></ul><ul><li>More than 4,700 listed companies. </li></ul><ul><li>Classified into A, B, S, T and Z groups. </li></ul>[email_address]
    4. 4. <ul><li>Bunch of 50 Stocks </li></ul><ul><li>NSE is a complete capital market </li></ul><ul><li>prime mover. </li></ul><ul><li>Its wholly-owned subsidiaries, </li></ul><ul><li>National Securities Clearing </li></ul><ul><li>Corporation Ltd. (NSCCL) provides </li></ul><ul><li>clearing and settlement of securities, </li></ul><ul><li>India Index Services and Products Ltd. (IISL) provides indices and index services with a consulting and licensing agreement with Standard & Poor's (S&P), </li></ul><ul><li>And NSE.IT Ltd. forms the technology strength that NSE works on. </li></ul>( National Stock Exchange)   [email_address]
    5. 5. Reforms <ul><li>From its 30 stocks, Cipla replaced with Tata Power on 28 July and Cement major Ambuja Cements replaced by Sterlite. </li></ul><ul><li>In Nov 2007 Dr. Reddy’ Lab was replaced with DLF. </li></ul><ul><li>Only pharma stock left in the Sensex is Ranbaxy. </li></ul><ul><li>Sensitive to market sentiments and market realities. </li></ul><ul><li>Offers 21 indices, including 12 sector indices. </li></ul>[email_address]
    6. 6. Reforms <ul><li>Stock market liberalization is the decision by a government to allow foreign investors to purchase shares in the local stock market and domestic investors to purchase shares abroad. </li></ul><ul><li>International asset pricing models predict that the integration with world financial markets should lead to a reduction in the cost of capital. </li></ul><ul><li>A number of papers assess the impact of stock market liberalization on the cost of equity capital, finding evidence of an increase in share prices around the liberalization date and a reduction in the cost of capital afterwards. </li></ul><ul><li>As part of the capital market reform programs, governments approved new laws and regulations aimed at creating the proper legal and regulatory framework for capital markets to flourish. </li></ul><ul><li>Many countries tried to improve corporate governance practices, by introducing new standards in a number of different areas, including voting ratings, tender procedures, and the structure of the board of directors. </li></ul>[email_address]
    7. 7. Reforms <ul><li>These reforms were expected to improve market performance, by increasing liquidity, enhancing efficiency, and reducing trading costs. </li></ul><ul><li>Focus on analysis on the replacement of traditional trading floors, on which brokers manually match orders using an open outcry system, by fully automated electronic trading systems. </li></ul><ul><li>Electronic trading systems may increase liquidity and improve efficiency by reducing transaction costs and increasing information availability. </li></ul><ul><li>These trading systems may also attract new pools of liquidity, by providing affordable remote access to investors. </li></ul><ul><li>Some countries also enacted new insider trading regulations and improved accounting and disclosure standards. </li></ul><ul><li>To account for improvements in the legal framework for investors, focus on the enforcement of insider trading regulations. </li></ul>[email_address]
    8. 8. Reforms <ul><li>Increases the pool of capital available to local firms and broadens the investor base. This is likely to lead to increased liquidity and larger amounts of research. </li></ul><ul><li>Improving the basic environment for capital market operations, including new policies related to securities clearance and settlement systems, trading platforms, and custody arrangements. </li></ul><ul><li>These reforms were expected to improve market performance, by increasing liquidity, enhancing efficiency, and reducing trading costs. </li></ul>[email_address]
    9. 9. Impact in current market scenario <ul><li>Realistic shares have lost 60-70% because of inflation. </li></ul><ul><li>RBI increased the Rapo Rate and CRR. </li></ul><ul><li>Metal shares are up because high cost of production. </li></ul><ul><li>There was heavy selling across the board by domestic and foreign investors. </li></ul><ul><li>According to brokers, the trigger for the big fall today was early selling by hedge funds. </li></ul><ul><li>This was followed by short-sellers who took advantage of the uncertainty to pull down the stock prices. </li></ul>[email_address]
    10. 10. Impact in current market scenario <ul><li>The brave face put up by the financial markets wilted away as major stock indices plummeted to historic lows. </li></ul><ul><li>Brokers said over Rs 1,00,000 crore of market capitalization was wiped out on May 14, probably the highest ever in a single day. </li></ul><ul><li>Weak trend in the various international markets, particularly in the emerging ones, also dampened the local sentiment. </li></ul><ul><li>As per Brokers, FIIs were major sellers in most of the index counters and in mid-cap stocks where they had taken exposures in the last few months. </li></ul><ul><li>The unexpected crash in stock prices has prompted most stockbrokers to have a second look at their investment strategy. </li></ul>[email_address]
    11. 11. Thank You [email_address]