Capital Market and Money Market

8/8/2019 Capital Market and Money Market

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CAPITAL MARKET AND MONEYMARKET


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INTRODUCTION

CAPITAL MARKETA capital market is a market forsecurities from where businessenterprises and governments canraise long-term funds. It is defined asa market in which money is provided

for periods longer than a year


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CAPITAL MARKET

PRIMARY MARKET SECONDARY MARKET

IPO

FPO

QIP

FDI

STOCK MARKET

MUTUAL FUNDS


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INITIAL PUBLIC OFFERING (IPO)

An initial public stock offering (IPO ) referred tosimply as a n "offeri ng" or "flotatio n," is whe n acompa ny issues shares to the public for the first time.

They are ofte n issued by smaller , you nger compa niesseeki ng capital to expa nd, but ca n also be do ne bylar ge compa nies looki ng to become publicly traded.It is number seven among the worlds biggest IPOmarketsshare of Indian global IPO proceeds is now 3.5 percent


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Resource Mobilisation through Public and Rights Issues

Particulars 2007-08 2008-09 Percentage Share in Total Amount

No. Amount(Rs. crore)

No. Amount(Rs. crore)

2007-08 2008-09

1 2 3 4 5 6 7

1. Public Issues (i)+(ii)

(i) Public Issues (Equity/PCD /FCD)

of which IPOs

FPOs

(ii) Public Issues (Bond / NCD)2. Rights Issues

92

9285

7

032

54,511

54,51142,595

11,916

0.0032,518

22

2121

0

125

3,582

2,0822,082

0

1,50012,637

62.63

62.63 48.94

13.69

0.00 37.37

22.08

12.84 12.84

0.00

9.25 77.91

3. Total (1+2) 124 87,029 47 16,220 100.00 100.00

Memo Item

Offer for Sale* 7 2,152 3 48 2.47 0.30

* All offers for saleare initialpublic offers,hence are alreadycounted underIPOs.


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QUALIFIED INSTITUTIONAL PLACEMENT

Qualified institutional placement (QIP) is a capitalraising tool, primarily used in India, whereby a listedcompany can issue equity shares, fully and partlyconvertible debentures, or any securities other thanwarrants which are convertible to equity shares to aQUALIFIED INSTITUTIONAL PLACEMENT(QIB).Apart from preferential allotment, this is the only otherspeedy method of private placement whereby a listedcompany can issue shares or convertible securities to aselect group of persons. QIP scores over other methodsbecause the issuing firm does not have to undergoelaborate procedural requirements to raise this capital.


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FOREIGN DIRECT INVESTMENT

Direct investment in productive assets by a companyincorporated in a foreign country, as opposed toinvestment in shares of local companies by foreign

entities. An important feature of an increasinglyglobalized economic system.New VenturesExisting Companies 2Government Approval


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Ranks Country 2006-07 (April-

March)

2007-08 (April-

March)

2008-09(April-

March)

2009-10 (April-

October 09)

CumulativeInflows

(April 00 toOctober 09)

%age tototal

Inflows(in terms of

rupees)

1. MAURITIUS 28,759(6,363)

44,483(11,096)

50,794(11,208)

36,572(7,550)

1 97,845(44,415)

44 %

2 . SINGAPORE 2,662

(578)

1 2,3 1 9

(3,073)

1 5,727

(3,454)

6,456

(1,335)

40,307

(9,146)9 %

3 . U.S.A. 3,86 1

(856)

4,377

(1,089)

8,002

(1,802)

6,359

(1,322) 34,3 1 8(7,657)

8 %

4 . U.K. 8,389

(1,878)

4,690

(1,176)

3,840

(864)

1 ,636

(340) 24,54 1(5,567)

5 %

5 . NETHERLANDS 2,905

(644)

2,780

(695)

3,922

(883)

3,224

(670)

1 9,076

(4,260)4 %

6 . JAPAN 382(85)

3,336

(815)

1 ,889

(405)4,590

(950)

1 5,8 1 5

(3,481)3 %

7.

CYPRUS266

(58)3,385

(834)5,983

(1,287)5,557

(1,155)

1 5,607

(3,428) 3 %

8 . GERMANY 540(120)

2,075

(514)2,750

(629)2, 1 60

(449)

11 ,648

(2,622)3 %

9 . FRANCE 528

(117)

583

(145)

2,098

(467)

1 ,11 9

(234)

6,60 1

(1,461)1 %

1 0 . U.A.E. 1 ,1 74(260)

1 ,039

(258)

1 ,1 33

(257)2,59 1

(537)6,597

(1,457)1 %

TOTAL FDI INFLOWS * 70,630 98,664 122,919 85,273 478,399(107,484) -

SHARE OF TOP INVESTING COUNTRIES FDI EQUITY INFLOWS (Financial year-wise):


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STOCK EXCHANGEThere are 22 stock exchanges in India, the first being the Bombay Stock Exchange(BSE), which began formal trading in 1875, making it one of the oldest in Asia.the greatest number of listed companies in the world, with 4700 listed as of August 2007.

the equity market capitalization of the companies listed on the BSE was US$ 1.79trillion, making it the largest stock exchange in South Asian and the 12th largest inthe world.The Capital Market (Equities) segment of the NSE commenced operations inNovember 1994NSE is the third largest Stock Exchange in the world in terms of the number of

trades in equities.It is the second fastest growing stock exchange in the world witha recorded growth of 16.6%.


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Table 2.16: Price-Earnings Ratio

Year/Month*

BSESensex

BSE 100 S&PCNXNifty

CNXMidCap

CNX IT CNX Bank CNXPSE

1 2 3 4 5 6 7 8

2006-07

2007-08

2008-09

Apr-08

May-08

Jun-08 Jul-08

Aug-08

Sep-08

Oct-08

Nov-08

Dec-08 Jan-09

Feb-09

Mar-09

20.33

20.11

13.65

21.56

19.87

16.5117.87

18.02

16.16

11.89

11.62

12.3612.85

12.55

13.65

17.64

19.95

15.30

21.69

19.94

17.8019.07

19.34

17.06

12.22

12.87

14.3014.29

14.11

15.30

18.40

20.63

14.30

22.20

20.74

17.2818.22

18.43

16.85

12.57

12.08

12.9713.40

13.12

14.30

15.58

14.75

9.77

15.98

14.77

11.5012.52

12.96

10.68

7.64

8.21

9.439.23

8.91

9.77

32.35

17.94

11.49

20.95

21.94

18.7317.16

18.36

14.57

12.04

11.03

9.8511.13

10.38

11.49

14.15

16.16

7.69

17.67

14.60

11.1512.62

13.44

12.78

9.29

8.82

10.288.30

7.25

7.69

10.61

13.47

18.13

13.89

12.67

10.8812.72

12.92

13.28

12.60

14.26

15.4717.25

17.29

18.13

*As on March31 of the respectiveye ar/monthSource: BSE, NSE


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Table 2.11: Turnover at BSE and NSE: Cash Segment

(Rs . crore ) Year / Month BSE NSE Total

Turnover Turnover Percentage

Variation* Turnover PercentageVariation*

1 2 3 4 5 6

2006-072007-082008-09Apr-08May-08

Jun-08 Jul-08Aug-08Sep-08Oct-08Nov-08

Dec-08 Jan-09Feb-09Mar-09

9,56,18515,78,85711,00,075

1,15,4541,21,6701,13,6051,23,916

99,9241,08,090

78,22763,694

80,86670,51054,33069,789

17.1765.12

-30.324.025.38

-6.639.08

-19.368.17

-27.63-18.58

26.96-12.81-22.9528.45

19,45,28535,51,03727,52,023

2,71,2272,77,9232,64,4282,95,8162,34,2512,62,2612,16,1981,73,123

2,12,9561,91,1841,49,8572,02,799

23.9482.55

-22.507.202.47

-4.8611.87-20.8111.96-17.56-19.92

23.01-10.22-21.6235.33

29,01,47151,29,89438,52,098

3,86,6813,99,5933,78,0334,19,7323,34,1753,70,3512,94,4252,36,817

2,93,8222,61,6942,04,1872,72,588

*Over previousperiod.Source: BSE, NSE


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Table 2.48: Investment by Foreign Institutional Investors

Year GrossPurchase

(Rs. crore)

GrossSales(Rs. crore)

NetInvestment

(Rs. crore)

NetInvestment

(USD mn.)

CumulativeNet

Investment (USD

mn.)1 2 3 4 5 6

1992-93

1993-94

1994-95

1995-96

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

18

5,593

7,631

9,694

15,554

18,695

16,116

56,857

74,051

50,071

47,062

1,44,855

2,16,951

3,46,976

5,20,506

9,48,018

6,14,576

4

467

2,835

2,752

6,980

12,737

17,699

46,735

64,118

41,308

44,372

99,091

1,71,071

3,05,509

4,89,665

8,81,839

6,60,386

13

5,127

4,796

6,942

8,575

5,958

-1,584

10,122

9,933

8,763

2,689

45,764

45,880

41,467

30,841

66,179

-45,811

4

1,634

1,528

2,036

2,432

1,650

-386

2,474

2,160

1,839

566

10,005

10,352

9,363

6,821

16,442

-9,837

4

1,638

3,167

5,202

7,635

9,285

8,899

11,372

13,531

15,371

15,936

25,942

36,293

45,657

52,477

68,919

59,081


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cumulative Fii inflow


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MUTUAL FUND

A mutual fund is a professionally managed type of collectiveinvestment scheme that pools money from many investorsand invests it in stocks, bonds, short-term money marketinstruments, and/or other securities. ] The mutual fund will

have a fund manager that trade the pooled money on aregular basis. The net proceeds or losses are then typicallydistributed to the investors annually.Indian investors have been able to invest through mutualfunds since 1964, when UTI was established.Between 1987 and 1992, public sector banks and insurancecompanies set up mutual funds. Since 1993, private sectormutual funds have been allowed


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Mobilisation of Resources by Mutual Funds

(Rs. crore)

Period GrossMobilisation

Redemption Net Inflow Assets at theEnd of Period

1 2 3 4 5

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

61,241

92,957

1,64,523

3,14,706

5,90,190

8,39,708

10,98,149

19,38,493

44,64,376

54,26,353

42,271

83,829

1,57,348

3,10,510

5,43,381

8,37,508

10,45,370

18,44,508

43,10,575

54,54,650

18,970

9,128

7,175

4,196

46,808

2,200

52,779

93,985

1,53,802

-28,296

1,07,946

90,587

1,00,594

1,09,299

1,39,616

1,49,600

2,31,862

3,26,292

5,05,152

4,17,300


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Unit Holding Pattern of All Mutual Funds

Category Number of

InvestorAccounts

% to Total

Investors

Net Assets

(Rs. crore)

% to

Total NetAssets

1 2 3 4 5

Individuals

NRIs

FIIs Corporate/Institutions/

Others

4,60,75,763 (4,20,14,713)

9,71,430 (8,57,950)

146 (902)

5,75,938 (5,01,599)

96.75 (96.86)

2.04 (1.98)

0.00 (0.00)

1.21 (1.16)

1,55,283 (1,87,464)

22,821 (24,697)

4,984 (8401)

2,36,233 (2,87,108)

37.03 (36.93)

5.44 (4.86)

1.19 (1.65)

56.34 (56.55)

Total 4,76,23,277

(4,33,75,164)

100.00 4,19,322 (5,07,670) 100.00


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Money MarketMoney market means market where money or itsequivalent can be traded.Money Market is a wholesale market of short term debtinstrument and is synonym of liquidity..Money Market is part of financial market whereinstruments with high liquidity and very short termmaturities ie one or less than one year are traded.Due to highly liquid nature of securities and their shortterm maturities, money market is treated as a safe place.

Hence, money market is a market where short termobligations such astreasury bills, call/notice money, certificate of deposits,commercial papers and repos are bought and sold.


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The Players

Reserve Bank of IndiaSBI DFHI Ltd (Amalgamation of Discount & Finance House inIndia and SBI in 2004)Acceptance HousesCommercial Banks, Co-operative Banks and Primary Dealers

are allowed to borrow and lend.Specified All-India Financial Institutions, Mutual Funds, andcertain specified entities are allowed to access toCall/Notice money market only as lendersIndividuals, firms, companies, corporate bodies, trusts and

institutions can purchase the treasury bills, CPs and CDs.


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Call Money Market

The call money market is an integral part of the Indian Money Market, where the day-to-day surplus funds (mostly of banks) aretraded. The loans are of short-term durationvarying from 1 to 14 days.The money that is lent for one day in thismarket is known as " C all Money ", and if itexceeds one day (but less than 15 days) it isreferred to as " Notice Money ".


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Call Money Market

Banks borrow in this market for the followingpurposeTo fill the gaps or temporary mismatches infundsTo meet the CRR & SLR mandatoryrequirements as stipulated by the Central

bankTo meet sudden demand for funds arising outof large outflows.


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Certificate of Deposit

CDs are negotiable money market instruments and are issuedin dematerialised form or a usance promissory note, for fundsdeposited at a bank or other eligible financial institution for aspecified time period.They are like bank term deposits accounts. Unlike traditionaltime deposits these are freely negotiable instruments and areoften referred to as Negotiable Certificate of Deposits


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Features of CD

(i) CDs can be issued by all scheduled commercialbanks except RRBs (ii) selected all india financialinstitutions, permitted by RBIMinimum period 15 daysMaximum period 1 yearMinimum Amount Rs 1 lac and in multiples of Rs. 1 lacCDs are transferable by endorsementCRR & SLR are to be maintainedCDs are to be stampedCDs may be issued at discount on face value


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Eligibility for issue of CP

the tangible net worth of the company, as per the latestaudited balance sheet, is not less than Rs. 4 crore;(b) the working capital (fund-based) limit of the company

from the banking system is not less than Rs.4 croreand the borrowal account of the company is classified asa Standard Asset by the financing bank/s.

All eligible participants should obtain the credit

rating for issuance of Commercial PaperThe minimum credit rating shall be P-2 of CRISIL orsuch equivalent rating by other agencies


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Treasury Bills

Treasury bills, commonly referred to as T-Bills are issued byGovernment of India against their short term borrowingrequirements with maturities ranging between 14 to 364days.All these are issued at a discount-to-face value. For example aTreasury bill of Rs. 100.00 face value issued for Rs. 91.50 gets

redeemed at the end of it's tenure at Rs. 100.00.Wh o can invest in T-Bill

Banks, Primary Dealers, State Governments, Provident Funds,Financial Institutions, Insurance Companies, NBFCs, FIIs (as

per prescribed norms), NRIs & OCBs can invest in T-Bills.


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At present, the Government of India issues three

types of treasury bills through auctions, namely,91-day, 182-day and 364-day. There are notreasury bills issued by State Governments.Amount

Treasury bills are available for a minimumamount of Rs.25,000 and in multiples of Rs.25,000. Treasury bills are issued at a discount andare redeemed at par.Types of Bills: on tap bills, ad hoc bills, auctionedT- bills


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Collateralized Borrowing and Lending Obligation (CBLO)

It is a money market instrument as approved by RBI, is a product developed by CCIL.CBLO is a discounted instrument available in electronic book entry form for the maturityperiod ranging from one day to ninety Days (can be made available up to one year asper RBI guidelines). In order to enable the market participants to borrow and lendfunds, CCIL provides the Dealing System through:

- Indian Financial Network (INFINET) , a closed user group to the Members of theNegotiated Dealing System (NDS) who maintain Current account with RBI.

- Internet gateway for other entities who do not maintain Current account with RBI.

Wh at is CBLO?

CBLO is explained as under: An obligation by the borrower to return the money borrowed, at a specified future

date;

An authority to the lender to receive money lent, at a specified future date with anoption/privilege to transfer the authority to another person for value received; An underlying charge on securities held in custody (with CCIL) for the amount

borrowed/lent.


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Banks, financial institutions, primary dealers,mutual funds and co-operative banks, who aremembers of NDS, are allowed to participate inCBLO transactions. Non-NDS members likecorporates, co-operative banks, NBFCs,Pension/Provident Funds, Trusts etc. are

allowed to participate by obtaining AssociateMembership to CBLO Segment.


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Repos

It is a transaction in which two parties agree to sell andrepurchase the same security. Under such anagreement the seller sells specified securities with anagreement to repurchase the same at a mutuallydecided future date and a priceThe Repo/Reverse Repo transaction can only be doneat Mumbai between parties approved by RBI and insecurities as approved by RBI (Treasury Bills,Central/State Govt securities).

Capital Market and Money Market

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