Presented by:

Habeeba Jameel

Yusuf Alvi

Gagan Varshney

Macroeconomic Development Primary Market Collective Investment Vehicles Mutual Funds

Secondary Market Capital Market

Debt Market Derivative Market Foreign Investment in India Policy Development

Greater integration with the world economy made India become

vulnerable to global shocks, as evidenced by the global financial

crisis of 2008.

After a recovery from the global financial crisis with two successive

years (2009-10 and 2010-11) of robust growth of 8.4 %, the GDP

growth decelerated sharply to 5.3-5.5 % (Q2 of 2012-13)

Inflation:

The sluggish growth accompanied by High Inflation

Remained high at over 9 % in the first eight months of 2011-12,

The slowdown was also reflected in all the three sectors of the economy

but industrial sector suffered the sharpest deceleration.

However, the predominance of the services sector remains a unique

feature of the overall growth story and the process of structural change in

India

It provides the channel for sale of new securities.

Provides opportunity to issuers of securities; government as well as

corporates, to raise resources to meet their requirements of

investment and/or discharge some obligation.

They may issue the securities at face value, or at a

discount/premium and these securities may take a variety of forms

such as equity, debt etc.

They may issue the securities in domestic market and/or

international market.

The primary market issuance is done through:

Public issues Right issues Private placement.

The total resources mobilized through corporate and government

securities in 2011-2012 amounted to Rs.9,926 billion as against

Rs.8,690 billion in 2010-2011.

14% increase.

Primary market for corporate securities witnessed a drop of

18.2% in 2011-2012, as compare to last year, due to: ▪ 8.6% drop in capital raised through private placements

▪ 65.8% decrease in resources raised through public placement

▪ 71.2% decrease in resources raised from the international capital market

But, Primary market for Govt. securities showed a growth of

30%

Resource Mobilisation by Corporate & Government Sector

A collective investment vehicle (CIV) is any entity that allows

investors to pool their money and invest the pooled funds, instead

of buying securities directly as individuals.

The most common types of collective investment vehicles are :

Mutual Funds Exchange-Traded Funds

The Unit Trust of India (UTI) that was created in 1964 was the first

MF in India. It enjoyed complete monopoly in MFs until 1986.

SBI Mutual Fund was the first non-UTI mutual fund established in

June 1987.

The MF business was progressively opened to competition after

1988. This move gathered momentum in India after economic

liberalization in 1991, and the establishment of the SEBI in 1992.

In 2009-10, the net resources mobilized through MFs were Rs.785

billion

The trend was reversed in 2010-11, this year witnessed a

slowdown, with the net resource mobilization by all the MFs taken

together aggregating Rs.( - 488) billion,

(i.e. Net Outflow of Rs. 488 bn)

The MF Industry continued to see the decline in net resources

mobilization at Rs.( - 437) billion in 2011-12.

It is a place where securities are traded after being initially offered

to the public in the primary market and/or being listed on the stock

exchange.

The stock exchanges along with a host of other intermediaries

provide the necessary platform for trading in the secondary market,

and also for clearing and settlement.

The securities are traded, cleared, and settled within the regulatory

framework prescribed by the exchanges and the SEBI.

The secondary market is composed of

Capital (equity) markets and

Debt markets.

Turnover:

Only the two stock exchanges, NSE and BSE, were reported significant

trading volumes.

From 2009-2010 to the first half of 2012-2013, decline in turnover on the

exchanges continued, mainly on account of the crisis and the uncertainties

in global financial markets.

The turnover on the NSE declined by 21.4% in 2011-2012 compared to the

previous year; and

The turnover on the BSE dipped by 39.6% over the same period

Returns:

Over 1-year ending March 2012, all the indices showed negative

returns in the range of 4% to 20%,

Whereas 6-month and 3-month returns were positive for all the

indices as at the end of March 2011.

As at the end of September 2012, the 1-year returns indicate that all

the indices were in green.

Liquidity:

During 2011-12, the percentage of companies traded to companies

listed on NSE was 93.1% while at BSE it was 58%.

The debt market in India consists of mainly two categories—

the government securities (or the g-sec) markets, comprising

central government and state government securities; and

the corporate bond market (also known as the non-gsec market)

In order to finance its fiscal deficit, the government floats

fixed income instruments and borrows money by issuing g-

secs that are sovereign securities issued by the RBI on

behalf of the GOI.

The corporate bond market consists of financial institutions

(FI) bonds, PSU bonds, and corporate bonds/debentures.

In 2011-12, the government and the corporate sector collectively

mobilized 33.3% more resources from the primary debt market, as

compared to the preceding year.

72.6% of resources were raised by government sector; & remaining

27.4% by corporate sector.

The turnover in the secondary debt market in 2011-12 was 4%

higher than that in the previous fiscal year.

Derivative instruments are used as risk averse economic agents

Its value is derived from the value of one or more basic variables,

called underlying.

The underlying asset can be equity, index, foreign exchange (forex),

commodity or any other asset.

By locking in asset prices, derivative products minimize the impact

of fluctuations in asset prices, on the profitability and cash flow

situation of risk-averse investors, and thereby, serve as instruments

of risk management.

India is one of the most successful developing countries in terms of

a vibrant market for exchange-traded derivatives.

Following the growing instability in the financial markets, the

financial derivatives gained prominence after 1970.

The turnover of derivatives on the NSE increased from

Rs.24 billion in 2000–2001

to Rs.292,482 billion in 2010–2011, and

reached Rs.313,497 billion in 2011–2012.

The total trading volumes in the equity derivatives at NSE and BSE

increased by 10% in 2011-12 as compare to previous year.

at NSE, 1205 million contracts were traded with a turnover of

Rs.313,497,318 million were traded; while

at BSE 32 million contracts traded with trading volumes of Rs.8,084,770

million.

From 1992, foreign institutional investors (FIIs) have been

allowed to invest in all securities traded on the primary and

secondary markets.

In the Budget 2011-I2, the Government of India permitted

qualified foreign investors (QFIs), who meet the KYC norms,

to directly invest in Indian mutual fund that invest in

infrastructure. (first time in India)

In January 2012, the Government expanded this scheme to

allow QFIs to directly invest in Indian equity markets.

In the budget 2012-13, Government announced its intention

to permit QFIs to invest in corporate bonds in India.

Number of Foreign Institutional Investors (FIIs): There was a net

addition of 43 SEBI-registered FIIs in 2011–2012, which took their

total number to 1,765.

In 2011–2012; the net FII investments in equity fell by 60.3% from

last year

The net investments by FIIs in the debt segment grew by 37.6 % in

2011–2012

NRI Investment:

The NRI turnover at the cash market of the NSE registered a decline of

8.3% in 2011-2012,

In the derivatives market of the NSE, the total NRI increased by 43.2%

in 2011-2012

In Indian Security Market

Maintaining fair and efficient markets

Developing new products

Improving the securities market arena

Enhancing operational efficiencies

Encouraging small investors

Attracting new players

Various regulatory changes

Primary Market

Capital Markets

Debt Market

ASBA facility (SEBI Circular dated April 29, 2011) To enhance the role of the Applications Supported by Blocked Amount

(ASBA) facility in public issues and to increase the reach of ASBA syndicate/sub-syndicate members were mandated to commence this facility initially from the twelve bidding centres that account for the maximum number of applications in public issues.

The ASBA facility was made mandatory for non-retail investors—qualified institutional buyers (QIBs) and non-institutional investors (NIIs)—making applications in public/rights issues, with effect from May 01, 2011

Adjustment of differential pricing amount(SEBI Circular dated May 16, 2011)

It was decided to allow the investors who are eligible for differential pricing in public issues to make the payment at a price net of discount (if any) at the time of application itself.

Redemption of Indian Depository Receipts (IDRs) into underlying equity shares (SEBI Circular dated June 3, 2011)

On completion of one year from the date of issuance of IDRs, redemption of IDRs are permitted only if the IDRs are infrequently traded on the stock exchanges in India.

“Infrequently Traded” If the annualised trading turnover in the IDRs during the six

calendar months immediately preceding the month of redemption is less than 5 % of the listed IDRs.

Applications for redemption of IDRs should be submitted within a period of thirty days from the date of the public announcement to the domestic depository

Redemption of IDRs should be completed within a period of thirty days

Eligibility criteria for companies coming out with IPOs through the profitability track record (SEBI Press Release dated July 28, 2011)

In the case of a pure offer for sale, the requirement that not more than 50% of the net tangible assets should be held as monetary assets will not be applicable. The requirement of a track record of distributable profits for at least three of the immediately preceding five years would have to be complied with on both a stand-alone as well as a consolidated basis.

Disclosure of quarterly financial results (SEBI Press Release dated July 28, 2011)

it was mandated that companies have to disclose the financial results of the immediately preceding quarter in addition to the disclosures of the financial results pertaining to the corresponding periods in the previous year.

Review of Internet-based trading and securities trading using wireless technology (SEBI Circular dated June 30,2011) Broker should capture the Internet Protocol (IP) address . The broker system should have built-in high system availability to address any single point failure. There should be secure end–to-end encryption for all data transmission between the client and the broker The broker system should have adequate safety features to ensure

it is not susceptible to internal/external attacks. In the event of a failure of either the IBT or the STWT, the

alternate channel of communication should have adequate capabilities for client identification and authentication

Clarification regarding admission of limited liability partnerships as members of stock exchanges (SEBI Circular dated July 11, 2011)

As per the LLP Act, the LLP is a corporate body. Sub-rules 4A and 5 of Rule 8 of the SCRR state that LLPs are similar to LLCs and partnership firms.

SMS and email alerts to investors from stock exchanges (SEBI Circular dated August 2, 2011)

Stock exchanges are now required to send the details of the transactions to the investors through SMSs and email alerts by the end of the trading day

Permanent Account Number to be used to verify the customer Simplification and rationalisation of opening process for trading

accounts (SEBI Circular dated August 22,2011) Simplification included the replacement of all the client-broker

agreements with the Rights and Obligations document, which would be mandatory and binding.

Guidelines for issue and listing of structured products/market linked debentures (SEBI Circular dated September28, 2011)

Eligibility criteria for issuers: minimum net worth of ` 100 crore issue such instruments.

Minimum ticket size: 10 lakh. Appointment of third party valuation agency: Third party valuation of

such securities by a credit rating agency was made mandatory, and the same should be disclosed to the public.

Primary issuance and sale of securities to retail investors: The issuer should ensure that such securities are sold to retail investors with the prescribed safeguards

Ban on incentives in public issues of debt (SEBI Circular dated December 26, 2011)

No person connected with the issue should offer any incentive, whether direct or indirect, in any manner, whether in cash, kind , services, or otherwise, to any person for making an application for the allotment of specified securities.

Standardisation of application form and abridged prospectus for public

issue of debt securities (SEBI Circular dated July 25, 2012)

The structure, design, format, contents, and organisation of information in

the application form and abridged prospectus were standardised and made

uniform for all public issues of debt securities to avoid any discrepancies.

System for making online applications for public issue of debt securities

(SEBI Circular dated July 27, 2012)

SEBI decided to extend the ASBA facility to the public issues for subscribing

to debt securities through an online interface with the facility to make online

payment.

‘Enhancing Liquidity in the Government Securities Market' (RBI Notification dated August 13, 2012)

Government Securities Market: Consolidation of outstanding government securities, based on model

plan Allocation of specific securities to each primary dealer for market

making. Retail Participation The services of banks—and post offices at a later stage, may be utilised

as a distribution channel and nodal point for interface with individual investors.

A centralised market maker for retail participants in government securities in the long term, who would quote two-way prices of government securities for retail/individual investors.

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