Induction on Finance

Dr. Pradiptarathi Panda

Assistant Professor

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Agenda for Discussion
Indian Securities Markets
Accounting Vs Finance
Stock exchanges/Markets
 Primary and Secondary Markets
3 Is in securities markets

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 Percentage of Listed Companies to World Listed
Companies
Where India Stands- securities markets ?
Percentage of Market Capitalisation 1%1%
3
10%
40% 36%
35% 13%
30% 1%
25% 6%
20%
15%
10%
10% Brazil Russia India China South Africa USA
5% 3%
1% 1% 1%
0%
Brazil Russia India China South USA
Africa
Mutualfund AUM ₹ Trillion 12.83%CAGR of select global benchmark Indices 12.15%
14.0% 10.8% 12.84%
70 11.99% 12.06%
12.0% 11.13% 11.41%
57.2 10.13%
60
10.0% 8.9% 5.68%
49.5 7.58% 7.47% 4.69%
50 8.0%
6.39%
6.0% 5.4% 5.20%
4.66% 4.82%4.57% 4.83%
40
4.0%
30 2.57%
1.8% 2.0%
30 2.0% 1.07%
20
0.0%
20
India USA Japan South Korea Indonesia

10 7.02 5 Years 10 Years 15 Years 20 Years 25 Years

1.093
0
2003 Pradiptarathi2017
2013 Panda - 2024-252020
PGP 2023 2024 7/9/2024
4

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Slide SEBI registered intermediaries
5

SEBI | Recognised Intermediaries

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6
What are Securities ?
 SCRA provides an inclusive definition of ‘securities’. It says that ‘securities’ include shares,
bonds, debentures, units of MF, units of CIS, etc. It does not define in terms of ingredients an
instrument must have to be considered as ‘securities’.

 It is precisely because ‘securities’ are most insecure instruments. If there is a market for such
insecure instruments, the market would collapse if somebody does not regulate away the
insecurities.

 The Indian securities market dates to the eighteenth century, when the securities of the East
India Company were traded in Mumbai and Kolkata.

 The orderly growth of the capital market began with the setting up of the Bombay Stock
Exchange in July 1875 and Ahmedabad Stock Exchange in 1894.

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 Careers in Securities Markets

About 50 lakh individuals

are currently engaged in
various segments in securities market
&
There is an estimated need of
2-3 lakh individuals each year
 Careers in Securities Markets
Mutual Fund Distributors
Asset Management Companies
Banks
Brokerage Firms
Foreign Exchange Consultants
Stock Exchanges
Investment Advisory Firms
Depository Participants
Other SEBI registered market intermediaries
Careers in Securities Markets
Stock Brokers & Associates
Custodians; RTAs
Mutual Fund Distributors / Advisors
Dealers
Merchant Bankers
Research Analysts
Relationship Managers
Portfolio Managers
Financial Planners
Wealth Managers
Compliance Officers & more…
Slide
10 Accounting vs. Finance

 Accounting – Father  Finance - Son

 Backward Looking  Forward Looking
 Process of recording financial  Finance: (1) personal, (2) corporate,
transactions pertaining to a business and (3) public/government.

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Slide
11 Finance- Core

FMI Corporate Finance

 TVM  Financing
 Risk & Return  Investing
 Bond & Equity Valuation  Dividend
 Derivatives

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 Corporate Finance: The Big Picture

Maximize the value of the business (firm)

(First principles)

The Financing Decision

The Investment Decision The Dividend Decision
Find the right kind of debt for
Invest in assets that earn a If you cannot find investments that
your firm and the right mix of
return greater than the make your minimum acceptable rate,
debt and equity to fund your
minimum acceptable hurdle return the cash to owners of your
operations and obtain a lower
rate. business
financing cost.
• The optimal mix of
How you choose to return cash
The return should debt and equity
The hurdle rate should to the owners will depend on
reflect the cash flow’s maximizes firm
reflect the riskiness of whether they prefer dividends or
magnitude, timing, value.
the investment. buybacks.
and side effects. • The right kind of
debt.
13

Markets

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 Banyan Tree –BSE(1875)
14

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 1875 1992 & 1993/1994

15

1988 & 1992

2008

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 2012
16

2016 & 2017

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Types of Markets

Primary Market
Secondary Market

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19
Primary market

 Market in which shares, debentures and other securities

are sold for the first time for collecting long-term capital
 Usually known as “Initial Public Offer” (IPO) Market
 Flow of funds is from savers to users/ borrowers
 Helps in capital formation

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20
Primary Markets

 New issues of financial instruments are offered for

sale

Intermediaries Suppliers
Users of funds (Merchant Bankers,
Underwriters, of funds
(Corporate Issuers) Brokers, RTAs, etc.) (Investors)

Financial Instruments
Funds

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 Types of Issues
21

 Public issue: Securities are issued to the members of the public, and anyone eligible to
invest can participate in the issue. This is primarily a retail issue of securities.
 Private placement: Securities are issued to a select set of institutional investors, who can
bid and purchase the securities on offer. This is primarily a wholesale issue of securities to
institutional investors.
 Preferential issue: Securities are issued to an identified set of investors, on preferential
terms, along with or independent of a public issue or private placement. This may include
promoters, strategic investors, employees and such specified preferential groups. d.
 Rights and bonus issues: Securities are issued to existing investors as on a specific cut-off
date, enabling them to buy more securities at a specific price (rights) or get an allotment of
additional shares without any consideration (bonus).

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22
Fund raising - Life cycle
Investors and Instruments issued depend on the option and stage of lifecycle
Depository Shares
Receipts with the
Foreign underlying being Strategic
Currency Bond Shares
convertible Investment
DRs with into Shares
ADR Customer,
underlying Supplier,
being Shares
FCCB Competitor
US QIB
Shares / PCD Shares
GDR
/ FCD Hedge Funds, FPIs
QIP
Shares Rights FPIs
Shares /
Issue QIBs
Warrants / Follow-on
FCD / PCD Public Issue Existing Shareholders
Private FPIs, FI, Banks, Insurance Cos, MF, HNI,
Shares Placement Individuals including NR

Shares IPO Promoters, Fis, Strategic

Warrants / Investor
Shares Private FPIs, FI, Banks, Insurance Cos,
Equity MF, HNI, Individuals including
Shares Venture
PE Funds NR
Capital
Seed
Venture Capitalist IPO: Initial Public Offer
Capital QIP: Qualified Institutions Placement
Own funds, Family, GDR: Global Depository Receipts
FCCB: Foreign Currency Convertible Bond
Friends, Angel Investors ADR: American Depository Receipts
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Options for raising funds

Various types of instruments

Debt Equity Hybrid

From Banks & FIs IPOs Various forms of

FPOs Convertibles
In India Public issue of
Rights Issue
Bonds/Debentures
Pref. Issue

Outside India ECBs ADR/GDRs FCCBs & FCEBs

ECB: External Commercial Borrowing

ADR/ GDR: American/ Global Depository Receipts
FCCB: Foreign Currency Convertible Bonds
FCEB: Foreign
Pradiptarathi Currency
Panda Exchangeable Bonds
- 2024-25 PGP 7/9/2024
Primary Market- Facts
Resources Mobilised from the Primary
Market
Resources
(Source : Mobilised from2019-20)
SEBI Handbook the Primary Market
(Includes (₹ FPOs,
IPOs, crore)
Bonds and Rights
Period
issues) Total
No. Amt
2010-11 91 67608.52
2011-12 71 48467.56
2012-13 69 32454.80
2013-14 90 55651.76
2014-15 88 19202.24
2015-16 108 58165.78
2016-17 134 62067.00
2017-18 231 110269.33
Apr 17-Dec 17 160 73138.45
Apr 18-Dec 18 124 44355.30
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Fund raising statistics through equity issuances

2016-17 2017-18 2018-19

Type of Amount Amount Amount
Issuance No. (₹ in No. (₹ in No. (₹ in
Crores) Crores) Crores)
Public 106 29087 202 83696 123 16087
Rights 13 3720 21 21400 10 2149
Sub - Total 119 32807 223 105096 133 18236
QIP 20 8464 54 71033 14 8678
Pref. 410 44249 407 59472 399 210138
Sub - Total 430 52713 461 130505 413 218816
Grand Total 549 85520 684 235601 546 237052

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 Why ipo?
26  For Funding Needs
 Capital Requirements for Organic Growth, expansion,
diversification
 Inorganic Growth through Acquisitions, participate in JV,
Collaboration
 Infrastructure Requirements, Marketing Initiatives and
Distribution Channels
 Working Capital Requirements, General Corporate Purposes
 Repaying debt to strengthen the Balance Sheet
 Meeting Issue Expenses
 For Non-funding Needs
 Enhancing Corporate Stature and visibility
 Retention and incentive for Employees through stock options
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 Providing exit options to Investors

27 THE ISSUERS
 Private companies, public companies and governments need
funding at various stages of their lifecycle
 A number of strategic considerations play a key role in arriving
at the decision for a fund raise:

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28 THE INVESTORS

BROAD CLASSIFICATION AS PER SEBI (ICDR) REGULATIONS

QIB Mutual Funds, Banks, Pension Funds, FPIs,

Insurance Companies

RETAIL Individual investors investing upto Rs. 2 lakhs

NII/HNI Investors other than QIBs and Retail Investors

Others Eligible employees, eligible shareholders in case

of reservation in IPOs
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 Reference Materials
29

 Elder, A. (2002). Come into my trading room: A complete guide to trading (Vol. 146). John Wiley & Sons.
 Graham, B. (2009). The intelligent investor, revised edition. HarperCollins.
 Lynch, P., & Rothchild, J. (2012). Learn to Earn: A Beginner's Guide to the Basics of Investing and. Simon and
Schuster.
 Kiyosaki, R. T. (2020). Rich Dad, Poor Dad: What The Rich Teach Their Kids About Money (p. 336). Sweek.
 Daniel, K. (2017). Thinking, fast and slow.

Websites
 https://www.investindia.gov.in/
 https://www.ibef.org/
 https://www.nseindia.com/resources/publications-nse-market-pulse
 https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=4&ssid=80&smid=105
 https://www.youtube.com/@AswathDamodaranonValuation

Department of Commerce VIT Vellore November 22, 2023