Venkat Financial Markets
Transcript of Venkat Financial Markets
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INDIAN FINANCIAL/ CAPITALMARKETS
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Financial Markets
A Market is a place where buyers andsellers come together to exchange
something Financial Markets are where financial
Instruments/products are exchanged.
A Financial Market is known by type ofproduct traded in it
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Different Financial Markets
FINANCIAL MARKET
MoneyMarket
DebtMarket
ForexMarket
CommodityMarket
CapitalMarket
SecondaryMarket
PrimaryMarket
GILT edgedMarket
CorporateMarket
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Money Market
Markets for short term
Borrowing and Lending
Primarily used by Banks
Typical Financial InstrumentsCall money market
Treasury bill market
Term money marketCertificate of deposit market
Commercial papers
Bills Discounting
Interest rate Swaps and FRAS
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Capital Market
It is an institutional arrangement for
borrowing medium and long-term funds and
which provides facilities for marketing and
trading of securities.
So it constitutes all long-term borrowings
from banks and financial institutions, borrowings
from foreign markets and raising of capital by
issue various securities such as shares
debentures, bonds, etc.
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Capital Market
Long Term Funds
Raised by
Government
Corporate
Trading Instruments used
Shares
Derivatives
Units of Mutual Funds
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SIGNIFICANCE OF CAPITAL MARKETS
Growth of savings
Efficient allocation of investment resources
Better utilization of the existing resources
CAPITAL MARKET INSTRUMENTS
o Equity
o Preference shares
o Debenture/ Bonds
o ADRs/ GDRs
o Derivatives
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Types of Capital market
Primary Market
Instruments issued for first time
Used by
Government/Corporates/PSUs
IPO
Initial Public Offering
Secondary Market
Trading of already issued
Stocks
Bonds
Stock Exchange
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Primary Market
The Primary Market consists ofarrangements, which facilitate theprocurement of long-term funds by
companies by making fresh issue ofshares and debentures. You know thatcompanies make fresh issue of shares
and/or debentures at their formationstage and, if necessary, subsequently forthe expansion of business.
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PARTIES INVOLVED IN THE NEW
ISSUE/PRIMARY MARKET
Managers to the Issue
Registrar to the Issue
UnderwritersBankers to the Issue
Advertising Agents
The Financial Institutions
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TYPES OF ISSUES IN PRIMARY MARKET
Issue through prospectus
Public issue (Offer for sale):
Private Placement
Rights Issue
Book Buildings
ESOPBONUS ISSUE
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SECONDARY MARKET
The secondary market known as stock
market or stock exchange plays an equallyimportant role in mobilizing long-term funds
by providing the necessary liquidity toholdings in shares and debentures
Place where buying and selling of
existing Shares/ Debt.EXAMPLES OF STOCK MARKETS
In India- BSE & NSE
Internationally- NYSE, LSE & TSE are the
largest capital markets
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Stock and Shares
Stock Capital raised by corporations
Through issue and distribution of shares
Share Signifies ownership in the company
A company might have thousands of
Shareholders Which company issued shares for the
first time in the world??? The Dutch East India Company in 1602
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The main characteristics of a stock
exchange are
It is an organized market. It provides a place where existing and
approved securities can be bought and soldeasily.
In a stock exchange, transactions take placebetween its members or their authorizedagents.
All transactions are regulated by rules and bylaws of the concerned stock exchange.
It makes complete information available to
public in regard to prices and volume oftransactions takin lace ever da .
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FUNCTIONS OF A STOCK EXCHANGE
Provides ready and continuous market
Provides information about prices andsales
Provides safety to dealings andinvestment
Helps in mobilisation of savings andcapital formation
Barometer of economic and businessconditions
Better Allocation of funds
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Stock Exchange
Place where the shares are traded
BSE
NSE
BSE Bombay Stock Exchange
Oldest Stock Exchange in Asia
Sensex Sensitive Index
Index of 30 Actively traded Companies
NSE National Stock Exchange
Incorporated in 1992
Nifty
Index of 50 Actively traded Companies
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7/4/2013 G.Venkatachalam.MBA.,M.Com.,M.Phil.,
Structure of Capital MarketsPrimary Markets Secondary Markets
When companies need financial resources forits expansion, they borrow money from
investors through issue of securities.
The place where such securities are traded bythese investors is known as the secondary
market.
Securities issued
a)Preference Shares
b)Equity Shares
c)Debentures
Securities like Preference Shares andDebentures cannot be traded in the secondarymarket.
Equity shares is issued by the under writersand merchant bankers on behalf of thecompany.
Equity shares are tradable through a privatebroker or a brokerage house.
People who apply for these securities are:
a)High net worth individual
b)Retail investorsc)Employees
d)Financial Institutions
e)Mutual Fund Houses
f)Banks
Securities that are traded are traded by theretail investors.
One time activity by the company. Helps in mobilizing the funds for the investorsin the short run.
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DISTINCTION BETWEEN PRIMARY
MARKET AND SECONDARY MARKET
Function
Participants
Listing Requirement
Determination of prices
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Debt Market
Debt Contract
One Party lends to another Party
Predetermined
Interest Rates and Term
Participants Banks
Financial Institutions
Mutual Funds
Insurance Companies etc.
Instruments Government Securities (G-Secs)
Public Sector Units Bonds
Corporate Securities
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Foreign Exchange Market
Foreign Goods Payments in Foreign Currency
Forex Market
Participants Government
Payments for Imports
Repayment of Loans
Importers Exchange Rates One Currency in terms of
other (Eg. 1 US Dollar = 55 Rupees) Bid Rate
Offer Rate
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Investment Basics
Using savings to get returns in futureis known as Investment
Why should I invest?? I want to earn return on my idle money
A good bank balance before I retire
I intend to own a Mansion and Ferrari
When should I invest
As soon as possible
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Where to invest???
Physical Assets
Real Estate ,Gold/jewellery
Requires huge capital Financial Assets
Savings Bank Account
Fixed Deposits Post office
Government Bonds
Provident Funds
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A Few Jargons!!!
Types of Shares Common/Equity Preferred
Face Value
Market Value
Market Capitalization
Dividend
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A few more Jargons!!!
Stock Broker
Mutual Funds
Annual Report
Prospectus
Liquidity
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PRIVATE EQUITY/ PRIVATEPLACEMENT
Funds are raised in the primary marketby issuing securities privately to someinvestors without resorting tounderwriting (insurance against risk by aguarantor). The investors in this casemay by financial institutions, commercial
banks, and other companies,shareholders of promoting companies,and friends and associates of the
promoters.
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REASONS FOR DEVELOPMENT OF
PRIVATE PLACEMENT
Private placement of securities is subject tomuch less compliance than the publicissue.
Private placement is cost effective ascompared to public issue.
Private placement is time effective as deals
can be easily and directly negotiated withfew investors.
Private placement helps to tailoring theissues according to the needs of the
companies.
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Regulatory Environment in India
Pre 1991
Tight Control of Government
Post 1991 Liberalization
Opening of the Economy
Need for Supervision Regulation
Regulatory Bodies
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Regulatory Environment in India
RBI Reserve Bank of India
Established in 1935
Bankers Bank Regulates Indian Financial Institutions
SEBI Securities and Exchange Boardof India
Incorporated in 1992
Regulation of Securities Market
Protecting the interests of Investors
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So want something more???
Whats more in Store??
Mutual Funds Stock Valuation
Derivatives
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Thank you !!