FM ppt copy

8/4/2019 FM ppt copy

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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 OFFUNDS(mainl

y businessfirms &

government

SUPPLIER OFFUNDS(mainly households)

Flow of funds(savings)

Flow ofFinancialServicesIncomes, &

Financial


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Money Markets Capital Markets

Primary Markets Secondary Markets

Public Issue

Rights Issue

Bonus Issue

Private Placement

Bought-out Deals

Financial Markets


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Capital Market

A capital market is a market for securities wherebusiness enterprises and governments can raise long-term funds. It is defined as a market in which money isprovided for periods longer than a year, as the raising ofshort-term funds takes place on other markets (e.g., themoney market)

BSE and NSE are the capital markets or stock markets

in India.

BSE started in 1887 and NSE in 1993. NSE is electronicexchange since inception. BSE started electronic trading

since 1995.
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Primary Market

Primary market is market for fresh capital.Funds raised through IPO

Right Issue

Private Placement

Three category Issuer

InvestorIntermediary


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To meet the financial requirements of theirprojects companies raises capital throughissue of securities (shares and debentures)inthe primary market.

The primary market created long terminstruments through which corporate entitiesborrow from the market.

The secondary market is the one whichprovides liquidity and marketability to theseinstruments.

Primary Market contd


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Features Of Primary Market

This is the market for new long term equity capital. The primary marketis the market where the securities are sold for the first time. Thereforeit is also called the new issue market (NIM).

In a primary issue, the securities are issued by the company directly toinvestors.

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 capitalformation in the economy.

The new issue market does not include certain other sources of newlong term external finance, such as loans from financial institutions.Borrowers in the new issue market may be raising capital forconverting private capital into public capital; this is known as "goingpublic."

The financial assets sold can only be redeemed by the original holder


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Types ofshares

Rightsissue

Bonusissue

Privateplacement

Publicissue

IPO

FPO

Structure Of Primary Market


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What are right issueshares?

Rights issues are the shares issued by a

company only to its existing shareholderswhich will be cheaper than the currentmarket price of that company share.


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Why issue shares to the existingshareholders?

Legally a rights issue must be madebefore a new issue to the public. This isbecause existing shareholders have theright of first refusal (otherwise known asa pre-emption right) on the new shares.


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How are the shares sold in arights issue priced?

The price at which the new shares areissued is generally much less than theprevailing market price for the shares. A

discount of up to 20-30% is fairly common.

The main reason is to make the offer

relatively attractive to shareholders andencourage them either to take up theirrights or sell them so the share issue is"fully subscribed".


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How many Rights issueshares will I get?

Rights issue are always offered inproportion to your existing shareholding.

Company may come out with a 2 for 1rights issue. Means, it will give theshareholder who has 1 share, the chance

to buy 2 additional shares. So, if you have50 shares, you will get the chance to buy100 additional shares, at a cheaper price.


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BONUS SHARES


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What are bonus shares?

Bonus shares are additional free sharesissued to the shareholder by the company.

Profitable Companies in India issue BonusShares. These are additional shares issuesgiven the shareholder without any cost to

existing shareholders.


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What does the Ratio of Bonus

Shares mean?

Bonus shares in India are issued in adefinite proportion to the existingholding. (Eg. Ratios against the number

of shares holding by the shareholder)


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How Bonus Shares are Issued?

Bonus shares are issued by using on thefree reserves of a company. Companiesaccumulate its reserves by retaining part ofits profit over the years (the part that is notpaid out as dividend). Sooner these freereserves increase. When the company

issues Bonus shares, the reserves willconverts into the capital.


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PRIVATE PLACEMENT


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What does a private placement

mean?The sale of securities to a relatively

small number of select investors as away of raising capital. Investors involvedin private placements are usually largebanks, mutual funds, insurance

companies and pension funds. Privateplacement is the opposite of a publicissue, in which securities are made

available for sale on the open market.


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Bought out Deals

Company sells its shares to merchant bankerShare issue bought entirely by 1 underwritera.k.a agent

Factors:1.Company has a fair record of repayment

2.Loan status3.Goodwill4.Other basic statistics


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IPO(Initial Public Offering)


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IPO

Company goes public for the first time

Raise funds

Purpose behind an IPO

1. Establishing New Business

2. Expansion Of Existing Business


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Process

Hire an Investment BankHire underwritersDeal between the bank and the company

Red Herring Prospectus1. Where the company will use the funds soraised

2. Companies previous records3. Promoters track records4. Companies current, likely profit and EPS5. Companies future plan


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Process Continued

Project floor price

Regulations of SEBI(freeze period)

Book building

1. Floor price

2. Cap price

3. Average price


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What to look for beforeinvesting in an IPO

1. Valuation: First thing to look at is how aggressively the IPO isPriced. The more aggressively it is priced the lesser the chancesof price appreciation.

2. Promoters Goodwill: the Promoters Goodwill is an important

parameter in analyzing an IPO as a goodwill creates trust intaking decision for applying for an IPO.

3. Brokers Report: Brokers can provide an investor with all theinfo he needs on the co. so an investor must take advice fromhis stock broker before applying for an IPO.

4. Ratings: SEBI has now made it mandatory for every co. to getits IPO rated through any approved rating agencies like CRISIL,

ICRA etc. but remember that it does not provide guarantee ofsuccess.


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HistoryIt was formed officially by the Government of India in

1992 with SEBI Act 1992 being passed by the IndianParliament. SEBI is headquartered in the business districtof Bandra-Kurla complex in Mumbai, and has Northern,Eastern, Southern and Western regional offices in NewDelhi, Kolkata, Chennai andAhmadabad.Controller of Capital Issues was the regulatory authoritybefore SEBI came into existence it derived authority fromthe Capital Issues (Control) Act, 1947.Initially SEBI was a non statutory body without any

statutory power. However in 1995, the SEBI was givenadditional statutory power by the Government of Indiathrough an amendment to the securities and ExchangeBoard of India Act 1992. In April, 1998 the SEBI was

constituted as the regulator of capital market in Indiaunder a resolution of the Government of India
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SEBI has to be responsive to the needs of three groups, whichconstitute the market:

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 actionin its executive function and it passes rulings and orders in its judicialcapacity. Though this makes it very powerful, there is an appealsprocess to create accountability.SEBI has enjoyed success as a regulator by pushing systemicreforms aggressively and successively (e.g. the quick movement

towards making the markets electronic and paperless rolling

Functions andresponsibilities
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SEBI has been active in setting up the regulations asrequired under law.

SEBI has also been instrumental in taking quick andeffective steps in light of the global meltdown and theSatyam fiasco . It had increased the extent and quantity ofdisclosures to be made by Indian corporate promoters.More recently, in light of the global meltdown , it liberalizedthe takeover code to facilitate investments by removingregulatory structures. In one such move, SEBI hasincreased the application limit for retail investors to Rs 2

lakh , from Rs 1 lakh at present

Contd


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For the discharge of its functions efficiently, SEBI hasbeen 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 books of accounts of a financialIntermediaries.

Powers


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Compel certain companies to list their shares inone or more stock exchanges.

Levy fees and other charges on the

intermediaries for performing its functions.

Grant licensed to any person for the purpose ofdealing in certain areas.

Delegate powers exercisable by it.

Contd


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Technical Advisory Committee Committee for review of structure of marketinfrastructure institutions

Members of the Advisory Committee for theSEBI Investor Protection and EducationFund Takeover Regulations Advisory Committee

Primary Market Advisory Committee (PMAC) Secondary Market Advisory Committee(SMAC)

SEBI Committees


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Mutual Fund Advisory Committee

Corporate Bonds & Securitization Advisory Committee

Takeover Panel

SEBI Committee on Disclosures and AccountingStandards (SCODA)

High Powered Advisory Committee on consent ordersand compounding of offences

Derivatives Market Review Committee

Committee on Infrastructure Funds

SEBI Committees CONTD..


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ADVANTAGES OF PRIMARY

MARKET

Company successfully raised funds

Manipulation of price is smaller so

invest in primary market is saferNo need of paying any brokerage or

transaction fees or any tax such as

service tax, stamp duty and STTNo need to time the market the

investors get the share at the same

price.


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DISADVANTAGES OF

PRIMARY MARKET

Money is locked and shares are allotedin after a few days. whereas in case of

secondary market the shares arecredited within three working days

Over subscription ,the shares are

alloted in proportionate basis, smallinvestors hardly get any allotment


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PROBLEMS FACED IN

INDIAN PRIMARY MARKET

There are several problems of the India

primary market

Withdraws of IPOs

Grey market and manipulationCauses


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SOLUTIONS TO THE

PROBLEMS

The practice of part payment of shares may beremoved.

The process of application money pertaining tothe shares could become uniform amongdifferent investor categories.

Restricting a company's entry into the primary

market if that company had withdrawn sharesfrom the market at least for a span of 12months.

Making the process of book building more

effective as well as making the book builders


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THANKYOU

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