BHUPENDRA BOHRA EETI GUPTA GOURAV PANDEY KRISHAN K SHARMA KINJAL L TOLWANI HEMIKA S K SWAHNEY MONIL NEBHNANI

Financial Market

Financial Markets aid in increasing production and income

for the various units.

It channelize the savings of households and surplus budget to those institutions that need fund.

The quantum of funds are made available to the

borrowers.

SEEKERS OF Flow of funds(savings) FUNDS(mainl SUPPLIER OF Flow of y business FUNDS(mainl Financial firms & y households) Services & Incomes, government Financial

Financial Markets
Money Markets Capital Markets

Primary Markets
Public Issue Rights Issue Bonus Issue Private Placement Bought-out Deals

Secondary Markets

Capital Market

A capital market is a market for securities where business enterprises and governments can raise longterm funds. It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets (e.g., the money market)

BSE and NSE are the capital markets or stock markets in India. BSE started in 1887 and NSE in 1993. NSE is electronic exchange since inception. BSE started electronic trading since 1995.

Primary Market
Primary market is market Funds raised through IPO

for fresh capital.

Right Issue Private Placement

Three category Issuer

Investor Intermediary

Primary Market contd

To

meet the financial requirements of their projects companies raises capital through issue of securities (shares and debentures)in the primary market.

The primary market created long term instruments through which corporate entities borrow from the market. The secondary market is the one which provides liquidity and marketability to these instruments.

Features Of Primary Market

This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM). In a primary issue, the securities are issued by the company directly to investors. The company receives the money and issues new security certificates to the investors. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business. The primary market performs the crucial function of facilitating capital formation in the economy. The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as "going public." The financial assets sold can only be redeemed by the original holder

Structure Of Primary Market

Types of shares
Public issue

IPO

FPO

Rights issue

Bonus issue

Private placement

What are right issue shares?

Rights

issues are the shares issued by a company only to its existing shareholders which will be cheaper than the current market price of that company share.

Why issue shares to the existing shareholders?

Legally

a rights issue must be made before a new issue to the public. This is because existing shareholders have the right of first refusal (otherwise known as a pre-emption right) on the new shares.

How are the shares sold in a rights issue priced?

The

price at which the new shares are issued is generally much less than the prevailing market price for the shares. A discount of up to 20-30% is fairly common.
main reason is to make the offer relatively attractive to shareholders and encourage them either to take up their rights or sell them so the share issue is "fully subscribed".

The

How many Rights issue shares will I get?

Rights

issue are always offered in proportion to your existing shareholding. Company may come out with a 2 for 1 rights issue. Means, it will give the shareholder who has 1 share, the chance to buy 2 additional shares. So, if you have 50 shares, you will get the chance to buy 100 additional shares, at a cheaper price.

BONUS SHARES

What are bonus shares?

Bonus

shares are additional free shares issued to the shareholder by the company. Profitable Companies in India issue Bonus Shares. These are additional shares issues given the shareholder without any cost to existing shareholders.

What does the Ratio of Bonus Shares mean?

Bonus

shares in India are issued in a definite proportion to the existing holding. (Eg. Ratios against the number of shares holding by the shareholder)

How Bonus Shares are Issued?

Bonus

shares are issued by using on the free reserves of a company. Companies accumulate its reserves by retaining part of its profit over the years (the part that is not paid out as dividend). Sooner these free reserves increase. When the company issues Bonus shares, the reserves will converts into the capital.

PRIVATE PLACEMENT

What does a private placement mean?

The

sale of securities to a relatively small number of select investors as a way of raising capital. Investors involved in private placements are usually large banks, mutual funds, insurance companies and pension funds. Private placement is the opposite of a public issue, in which securities are made available for sale on the open market.

Bought out Deals

Company sells its shares to merchant banker Share issue bought entirely by 1 underwriter a.k.a agent
Factors: 1. Company has a fair record of repayment 2. Loan status 3. Goodwill 4. Other basic statistics

IPO(Initial Public Offering)

IPO
Company

goes public for the first time Raise funds Purpose behind an IPO 1. Establishing New Business 2. Expansion Of Existing Business

Process
Hire an Investment Bank Hire underwriters Deal between the bank and Red Herring Prospectus

the company

1. Where the company will use the funds so raised 2. Companies previous records 3. Promoters track records 4. Companies current, likely profit and EPS 5. Companies future plan

Process Continued
Project

floor price Regulations of SEBI(freeze period) Book building 1. Floor price 2. Cap price 3. Average price

What to look for before investing in an IPO

1. Valuation: First thing to look at is how aggressively the IPO is Priced. The more aggressively it is priced the lesser the chances of price appreciation. 2. Promoters Goodwill: the Promoters Goodwill is an important parameter in analyzing an IPO as a goodwill creates trust in taking decision for applying for an IPO. 3. Brokers Report: Brokers can provide an investor with all the info he needs on the co. so an investor must take advice from his stock broker before applying for an IPO. 4. Ratings: SEBI has now made it mandatory for every co. to get its IPO rated through any approved rating agencies like CRISIL, ICRA etc. but remember that it does not provide guarantee of success.

History
It was formed officially by the Government of India in 1992 with SEBI Act 1992 being passed by the Indian Parliament. SEBI is headquartered in the business district of Bandra-Kurla complex in Mumbai, and has Northern, Eastern, Southern and Western regional offices in New Delhi, Kolkata, Chennai and Ahmadabad. Controller of Capital Issues was the regulatory authority before SEBI came into existence it derived authority from the Capital Issues (Control) Act, 1947. Initially SEBI was a non statutory body without any statutory power. However in 1995, the SEBI was given additional statutory power by the Government of India through an amendment to the securities and Exchange Board of India Act 1992. In April, 1998 the SEBI was constituted as the regulator of capital market in India under a resolution of the Government of India

Functions and SEBI has to be responsive to the needs of three groups, which constitute the market: responsibilities
the issuers of securities the investors the market intermediaries.
SEBI has three functions rolled into one body: quasi-legislative, quasi-judicial and quasi-executive. It drafts regulations in its legislative capacity, it conducts investigation and enforcement action in its executive function and it passes rulings and orders in its judicial capacity. Though this makes it very powerful, there is an appeals process to create accountability. SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e.g. the quick movement towards making the markets electronic and paperless rolling

Contd
SEBI has been active in setting up the regulations as required under law.

SEBI has also been instrumental in taking quick and effective steps in light of the global meltdown and the Satyam fiasco . It had increased the extent and quantity of disclosures to be made by Indian corporate promoters. More recently, in light of the global meltdown , it liberalized the takeover code to facilitate investments by removing regulatory structures. In one such move, SEBI has increased the application limit for retail investors to Rs 2 lakh , from Rs 1 lakh at present

Powers
For the discharge of its functions efficiently, SEBI has been invested with the necessary powers which are: To approve bylaws of stock exchanges. To require the stock exchange to amend their bylaws. Inspect the books of accounts and call for periodical returns from recognised stock exchanges. Inspect the Intermediaries. books of accounts of a financial

Contd
Compel certain companies to list their shares in one or more stock exchanges. Levy fees and other charges on the intermediaries for performing its functions. Grant licensed to any person for the purpose of dealing in certain areas. Delegate powers exercisable by it.

SEBI Committees
Technical Advisory Committee Committee for review of structure of market infrastructure institutions Members of the Advisory Committee for the SEBI Investor Protection and Education Fund Takeover Regulations Advisory Committee Primary Market Advisory Committee (PMAC) Secondary Market Advisory Committee (SMAC)

SEBI Committees CONTD..

Mutual Fund Advisory Committee

Corporate Bonds & Securitization Advisory Committee

Takeover Panel

SEBI Committee on Disclosures and Accounting Standards (SCODA)

High Powered Advisory Committee on consent orders and compounding of offences Derivatives Market Review Committee

Committee on Infrastructure Funds

ADVANTAGES OF PRIMARY MARKET

Company

successfully raised funds Manipulation of price is smaller so invest in primary market is safer No need of paying any brokerage or transaction fees or any tax such as service tax, stamp duty and STT No need to time the market the investors get the share at the same price.

DISADVANTAGES OF PRIMARY MARKET

Money

is locked and shares are alloted in after a few days. whereas in case of secondary market the shares are credited within three working days Over subscription ,the shares are alloted in proportionate basis, small investors hardly get any allotment

PROBLEMS FACED IN INDIAN PRIMARY MARKET

There are several problems of the India primary market
Withdraws

of IPOs Grey market and manipulation Causes

SOLUTIONS TO THE PROBLEMS

The

practice of part payment of shares may be removed. The process of application money pertaining to the shares could become uniform among different investor categories. Restricting a company's entry into the primary market if that company had withdrawn shares from the market at least for a span of 12 months. Making the process of book building more effective as well as making the book builders

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