capital market
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Transcript capital market
By Dr. Ajit Kumar
AGM, MoF
CAB, PUNE
CAPITAL MARKET
Definition-
borrow/lend lond term capital fund
Capital Market vs Bank Finance
Advantages and Disadvantages
Constituents of Indian capital Market
1.Government Security market-B.R.Act
2. Industrial Security market
Segments of Security Market
1.
Primary Market-helps in growth of economy
2. Secondary Market-does not help
Primary market is also known as NIM
Why Secondary market
For
the efficient growth of primary market, a
sound secondary market is an essential
requirement. It provides liquidity to the investors
as also a high profit expectation. NIM can’t exist
without SM.
Stock Exchanges
Subject to Govt supervision & control
Total no. of stock exchanges –23
Two national stock exchanges 1.BSE
2.NSE
BSE- estd. In 1857, in fact oldest in Asia
NSE- set up in 1993, has 70% share of total trading
Out of 21 Regional stock exchanges 15 stock exchanges
reported NIL transaction.
NSE is harbinger of reforms in capital market
Who Regulates ?
Stock
market is regulated by SEBI under
‘Securities Contracts Regulation Act’ 1956
(SCRA)
concurrently with GOI(MOF+MOC), RBI also
has a regulatory role with regard to FII & FDI.
SEBI was set up in 1988 but SEBI Act was passed
in 1992.
Prior
to SEBI it was regulated by Controller of
Capital Issues.
Capital Market Instruments
1.Preference
Share
2. Equity Share- min.25% public offer req for new issues for listing
3. Non-voting Equity share-Abid Hussain committee
4. Convertible Cumulative Preference Share
5. Company Fixed Deposit
6. Debenture & Bonds- issued under common seal of the company
7. Warrants-10 to30% above market price- sweeteners
Methods of Marketing Securities I
1.
Pure Prospectus Method-exclusively from general public, adv
2. Offer for Sale – sale to intermediaries at agreed price,adv
3. Private Placement – not more than 50, for listed,lockin5yr
4. Bought Out Deals- same as ppfor unlisted,lock in 18m,adv
5. Rights Issue- existing shareholders,only by listed companies
6. Bonus Issue- accumulated reserves and surplus of
profits converted into paid-up capital.Free of charge.
7. Book Building Method- merchant banker-qualified
institutional buyers,price bids,free to determine private placement &
Methods of Marketing securities II
8. Stock Option Method (ESOP)- only for listed companies,
with prior approval of shareholders through a special resolution.
9.Initial Public Offer (IPO)-1 time,unlisted only if net worth>3c,profit
Under this method securities are issued to successful
applicants on the basis of the order placed by them
through their broker.
Red herring clause- A preliminary prospectus (also known
as red herring) often with words with letters which say it
is preliminary and the price is not yet set.
Green shoe option- additional subscription can be offered
by the issuer (15%)
Intermediaries of the Market
Merchant Bankers/ Lead Managers- regulated by SEBI
Registrars and share transfer agents
Underwriters- CARE-a bank can’t uw > 15% of the issue,
can’t uw >400 times of it’s net worth, underwriting is
eligible for computation of capital market exposure.
Bankers to Issue- certificate of registration from SEBI required
Rating Agencies (CRISIL, ICRA, Fitch)
Brokers & Sub-brokers- 9400 Broking outfits out of
which 29 are foreign brokers
Depositories
Depositories-Depository Act –1996, It’s a company under
the Companies Act 1956.We have multi depository
system.Depository is a custodian where investors deposit
their assets and it executes certain orders of the investorsNational Securities Depository Ltd.(NSDL), Centralised
Depository Services Ltd. (CSDL)
Depository Participants- It is base level branch of a bank
or a non-bank maintaining deposit on behalf of investorstotal number 295.
WHY EXPO0SURE NORMS
Why limit on Capital Market Exposure?- Risk
Why emphsis on CD ratio?
Bank Finance- appraisal based/ merit based
Capital Market – theoretically appraisal based but
practically confidence based
Bank in a position to monitor by way of post credit
supervision, no such mechanism in case of capital market
exposure.-guided by market perception and manipulation.
Glass
Steagall Act was enacted in USA after 1929
stock market crash. The bank was not allowed to
take direct exposure in stock market. Banks were
required to have a firewall between bank’s
investment portfolio and others.
Abolished during Reagan regime.
Extant Exposure norms- India
It’s time to say
Thank
You