EQUITY MARKET REFORMS AND ITS IMPACT ON INDIAN ECONOMY

PRESENTED BY
HARDIKA MUNI:-INO821 HASTI KHIMANI: - INO822 JINAL GOGRI: - INO823 KAJAL KATARIA: - INO824 KANCHAN SANWLANI: - INO825

STRUCTURE OF CAPITAL MARKET

ORGANISED MARKET

CAPITAL MARKET

INDUSTRIAL SECURITIES MARKET PRIMARY MARKET

GOVERNMENT SECURITIES MARKET TERM LOAN MARKET

LONG TERM LOANS MARKET

SECONDARY MARKET

MARKET FOR FINANCIAL GUARANTEES MARKET FOR MORTGAGES

IMPORTANCE OF CAPITAL MARKET

The capital market serves as an important source for the productive use of the economys savings It provides incentives to saving and facilitates capital formation by offering suitable rates of interest as the price of the capital

It provides an avenue for investors, particularly the household sector to invest in financial assets which are more productive than physical assets
It facilitates increase in production and productivity in the economy Moreover, it serves as an important source for technological upgradation in the industrial sector by utilizing the funds invested by the public

WHY SHOULD ONE INVEST IN EQUITIES IN PARTICULAR?

Over a 15 year period between 1990 to 2005, Nifty has given an annualised return of 17%. Equities are considered the most challenging and the rewarding, when compared to other investment options. Research studies have proved that investments in some shares with a longer tenure of investment have yielded far superior returns than any other investment.

MARKET PARTICIPANTS

WHAT IS STOCK EXCHANGE?

Stock exchange is any body of individual, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities

Stock

exchange can be regional stock exchange, which are permitted to have nation wide trading since inception

REGIONAL EXCHANGES

There are 23 stock exchanges in India

Among

them two are national level stock exchange.i.e

National Stock Exchange (NSE) Bombay Stock Exchange (BSE) rest 21 are regional stock exchanges

The

SOME REGIONAL EXCHANGES OF INDIA

Banglore stock exchange Bhubaneswar stock exchange Calcutta stock exchange Cochin stock exchange Delhi stock exchange Jaipur stock exchange Madras stock exchange Meerut stock exchange Pune stock exchangeetc

WHAT IS EQUITY/SHARE?

Total equity capital of the company is divided into equal units of small denominations, each called share Eg. In a company total equity capital of Rs 20,00,000 units of Rs 10 each. Each such unit of Rs 10 is called share Thus the company said to have 20,00,000 equity shares of Rs 10 each The holder of such share are members of the company and have voting right

FACE VALUE
The nominal amount assigned to a securities by the issuer It is the original cost shown on the certificate Issue price is the price at which a company`s shares are offered initially in the primary market

Premium

Discount

Sold above face value

Sold below face value

GROUPS

A Group

B Group

S Group

TS Group

Z Group

WHAT IS AN INDEX?

An index shows how a specified portfolio of share prices are moving in order to give an indication of market trends

It is a basket of securities and the average price movement of the basket of securities indicates the index movement, whether upwards or downwards

MARKET CAPITALISATION

Market value of the quoted company Calculated by Current share price X No of shares in issue Eg. Rs 100 X 120 million share=12000 million

WHAT IS ADR?
An American Depositary Receipt (or ADR) represents the ownership in the shares of a foreign company trading on US financial markets. The stock of many non-US companies trades on US exchanges through the use of ADRs. ADRs enable US investors to buy shares in foreign companies without undertaking cross-border transactions. ADRs carry prices in US dollars, pay dividends in US dollars, and can be traded like the shares of US-based companies. Eg. ICICI, WIPRO, SARTAM etc

WHAT IS GDR?

Global Depository Receipt (GDR) Certificate issued by international bank, which can be subject of worldwide circulation on capital markets. GDR's are emitted by banks, which purchase shares of foreign companies and deposit it on the accounts. Global Depository Receipt facilitates trade of shares, especially those from emerging markets. Prices of GDR's are often close to values of related shares. Very similar to GDR's are ADR's.

FUNCTION OF SECURITY MARKET

Purchase or sell of securities Raising funds through public issue

Relocation of savings into investment

WHY DOES SECURITY MARKET NEED REGULATORS?

REGULATORS OF THE MARKET

Securities Contracts (Regulation) Act, 1956

Companies Act, 1956

Depositories Act, 1996 Securities and Exchange Board of India (SEBI)

Industrial securities market

Primary market

Secondary market

PRIMARY MARKET
Channel

for sale of new securities.

Provides opportunity to issuers of securities; Government as well as corporates , to raise resources for investment. the securities at face value, or at a discount / premium

Issue

KINDS OF ISSUE
Initial

Public Offering (IPO) Public Offering (FPO)

Further

Rights

Issue
issue

Preferential

SECONDARY MARKET
Market

where existing securities listed on the Stock Exchange are traded.

Stock

exchanges in India are regulated by the Securities and Exchange Board of India (SEBI) of equity markets and the debt

Comprises

markets.

ANALYSIS

Fundamental Analysis.
Technical Analysis.

FUNDAMENTAL ANALYSIS

Fundamental Analysis is done to determine a securitys value by focusing on underlying factors that affect a company's actual business and its future prospects Fundamental Analysis serves to answers questions like Is the companys revenue growing? Is it actually making a profit? Is it in a strong-enough position to beat out its competitors in the future? Is it able to repay its debts?

TECHNICAL ANALYSIS

FACTORS INFLUENCING INVESTORS/PRICE OF STOCK

SCAMS IN THE INDIAN EQUITY MARKET

HARSHAD

MEHTA SCAM 1992

KETAN

PAREKH SCAM 2000-2001

INTER-RELATION
BSE

REFORMS & ITS IMPACT ON THE INDIAN ECONOMY

R 1992 SEBI came into existence. I it smoothened the functions of the market and there was more clarity in its operations. It has helped in promoting the development of the securities market. it protected the interests of investors in securities.

..CONTINUED
R - Over-the-Counter. I - All the spot trades where securities are traded for immediate delivery and payment. R - Disclosure and Investor Protection (DIP) guidelines. I - ensure that all the concerned entities observe high standards of integrity and fair dealing.

..CONTINUED
R National Stock Exchange (NSE) 1994 & Bombay Stock Exchange (BSE) - 1992 I more transparency and clarity R Screen Based Trading fully automated screen based trading system (SBTS). I It allows a large number of participants simultaneously. improving the depth and liquidity of the market.

..CONTINUED
R Trading Cycle T+ 2 Days. I makes the working smoother and there is faster liquidity in the market. R Demutualization. I proper channelizing of all the trading across the exchanges. R Dematerialization. I no physical transfer of shares involved.

.CONTINUED

R Depositories Act (NSDL / CSDL) I provide instantaneous electronic transfer of securities. R ADRs, GDRs, FCCBs I this has helped our players to go in the global markets.

CURRENT SCENARIO

HISTORY REPEATS ITSELF

Every 8 years, market does see a deep cut in valuations. In the previous 8-year cycle top during 1992-93, Sensex lost 56% from 4546 to 1980. In the next cycle top, the cut was almost 58% from 6150 in 2000 to 2594 in 2001. 1992 cycle completed the bear phase in 12-16 months While the 2000 cycle took 19 months only to hit the low, which was then followed by 19 months of base formation before bull phase co

SENSEX PAIN RESURFACES

Effects of the global crises and the repercussions that are bound to follow in terms of a slower world economic growth in the near to medium-term, were clearly reflected in equities.

In line with its global peers, the Indian stock markets too witnessed a massive exodus of capital in October 2008 as investors continued their shift away from riskier asset classes.

SENSEX - FOUR CONSECUTIVE QUARTERS OF -VE RETURNS

GLOBAL INTEREST RATES (CONTD)

With the economic outlook weakening in 2008, global policy makers have resorted to various measures to support & re-fuel their economic growth.

While bailout and stimulus packages have been the need of the hour, Monetary Policy tools have also played an important role.
Global central banks, as they slash interest rates to make available cheaper credit, restore consumer confidence & rekindle demand.

GLOBAL INTEREST RATES

Country Hong Kong US UK India Singapore China Germany Latest 0.50 0.25 2.00 5.50 0.06 5.31 2.50 Peak since 2006 6.75 5.25 5.75 9.00 3.00 7.47 4.25 +/-bps (625) (500) (375) (350) (294) (216) (175)

Japan
Malaysia Source: Bloomberg, Angel Research

0.10
3.25

0.50
3.50

(40)
(25)

INFLATION

Inflation as measured by the wholesale price index (WPI) topped out in August 2008 and has since been on a steep downhill . From a peak of 12.91%, inflation is currently at 6.4% levels.

Considering the current trend in terms of the weakness in oil, metals and other commodity prices we expect inflation in India would settle at 3-4% levels by March 2009, even the average for the full year would settle at 8.5-9% levels.
One silver lining for global economies as lower inflation would provide most Central Banks the scope to cut rates further.

INFLATION(CONTD)

Country

Latest

Peak in 2008

India
Philippine China Malaysia Singapore Hong Kong US UK

6.4
9.9 2.4 7.6 6.4 1.8 1.1 4.1

12.9
12.5 8.7 8.5 7.5 6.3 5.6 5.2

Taiwan
Japan

2.4
1.7

4.1
2.3

Source: Bloomberg,

REPO RATE & CRR

The RBI has cut the repo rate, the rate at which it lends to commercial banks, by 350bp to 5.5% since September 16, 2008. It has also reduced the cash reserve ratio (CRR) the money banks keep with the RBI - by 400bp to 5%.

REPO RATE & CRR (CONTD)

CRUDE OIL

Lower crude oil prices in particular benefit the Indian economy considering its high dependency (70% of total requirement) on crude oil imports to meet its demand.

We estimate that the near US $100 per barrel correction of the Indian crude basket could potentially save India around Rs1,50,000cr on an annualised basis

CRUDE OIL(CONTD)

FOREIGN DIRECT INVESTMENT(FDI)

Apart from the pressure on FII flows, sustained scarcity of global liquidity continued to take its toll on FDI inflows. There has been a sharp slowdown in FDI inflows into the country particularly from the second half of the calendar year. Merger & Acquisition (M&A) activities constitutealmost 1/3rd of the global FDI flows and with capital becoming scarcer and dearer, companies globally are finding it difficult to get access to the same.

FDI(CONTD)

FOREIGN INSTITUTIONAL INVESTORS(FIIS)

FIIs continued their selling spree across Emerging markets, including in India. Redemption pressures across funds (Emerging markets' funds) led to FIIs continuing to pull out of Indian equities. Globally, no acts of government intervention in terms of bailout and/or stimulus packages and/or adoption of monetary tools to increase liquidity & make capital cheaply available helped soothe investor sentiments

FIIS(CONTD)

FII Net Sales during 3QFY2009 in Indian equities stood atRs15,750cr (US $3.2bn) with their calendar 2008 Net Sales being Rs52,000cr (US $11.9bn). Even the Domestic Mutual Funds,which bought stocks worth nearly Rs11,000cr (US $2.6bn) until September 2008 (calendar year), opted to go into hibernation. Their Net Purchase during the December quarter being at Rs660cr (US $130mn)

FIIS(CONTD)

CONCLUSION
World

is now ONE-or at least Central Banks are,as they have taken(& may continue to take) coordinated steps to salvage the situation.

THANK YOU

ANY QUESTIONS?