smita (opp&cha)

8/4/2019 Smita (Opp&Cha)

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Indian Securities Market :

What it was, What it is now

Opportunities

Challenges


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Indian Securities Market

Pre 1992 Post 1992


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Restrictions on foreign investment

License raj, Poor governance

Open outcry trading system

Longer settlement period

Unregulated Merchant Bankers, intermediaries Investor protection was much on paper than in

reality


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Reforms : liberalization , globalization,

privatization

Opening up the financial sector for foreigninvestment

SEBI was formed

Regional exchanges lost their relevance entiremarket share divided between NSE and BSE

Electronic era


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WHY 1992?

HINT?


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Primary Market - new issues mkt (IPO, FPO)

Secondary Market (stocks, bonds)

Derivatives Market (F&O in : indices andequity shares )


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Benjamin Graham


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Components ofSecurities Market

SecuritiesShares, Bonds,

Debentures, F&O,Mutual Funds

Intermediaries

Brokers, Sub Brokers,Custodians, Transferagents, M.B., Stock

Exchanges

Issuers

Companies,

Government, FinancialInstitutions, Mutual

Funds, Banks

InvestorsIndividuals, Companies,

M.F.s, Fls, FIIs

Market RegulatorsSEBI, DEA, DCA, RBI,

Stock Exchanges


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In the recent past, the Indian securities market has seenmulti-faceted growth in terms of :

Technology enabling faster movements of funds (EFT facility)

Dematerialization of shares, reduced settlement cycles

Clearing houses set up by each of the stock exchanges (NSCCLof NSE) have reduced the counter-party risk

Risk management mechanisms (Capital adequacy

requirements, trading and exposure limits, daily margins,M2M)

Indian companies can now raise funds freely from theinternational capital markets, via ADR, GDR, FCCB


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Futures and Options on benchmark indices as wellas stocks

Futures on interest rate products such as Notional91-Day T-Bills, 10-Year Notional Zero CouponBond, and 6% Notional 10-Year Bond

Number of stock exchanges and otherintermediaries

Number of listed stocks

Amount raised from the market and the Market

capitalization Trading volumes and turnover on stock exchanges

Investor population and Participants


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Stocks

shortest route to the largest wealth creationfor the long term.

current situation offers a lifetime opportunity

to make long-term wealth WHY?


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By the end of this decade, Sensex is expected

to grow from the current level of 18,000 to asix-digit figure

Corporate earnings have grown at around

three times the GDP growth

Companies can clock 25- 27% annual growth

Indias domestic demand will continue to rise

FIIs turning to India, due to its sustained high

growth


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Single biggest vehicle of transporting retail investorssavings into stocks and debt instruments

Funds represent all the goodness of stock market,

but at lesser risk A good equity fund rises faster than the market and

falls slower

Online analytical tools available now

Generating 15-17% annual returns is much easier,BUT only in the long-term


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For growth, investors must choose a mix of large-

cap, mid- cap, small-cap and value-style (sectoal)

funds.

Even if funds were to grow at the rate of the past

five years, you will make a lot of wealth :


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John Keynes


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Till now, fixed incomedebt instruments act as

a safety net,

with products such as

FDs & PPF

But slowly; Debt funds,

Corporate bonds andBlended products will

dominate


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Corporate bonds - a good mix of attractive

returns and relative safety , issued by rapidlyexpanding companies in need of money

In the next few years, retail investors may be

allowed to trade bonds. This will add the liquidityquotient to your debt cushion

Blended products - An imp. component of PMS,

these products blend equity, debt and gold toconserve capital and provide exposure to bull

runs simultaneously


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Developments in IPO Market the IPO mkt is

largely paper based even today. Technical

automation will be a big enabler, with speedyprocessings. Also, widespread use of ASBA

Penetrating use of new products like Interest rate

futures, Currency Futures, etc. Allowing institutional investors to participate in

Commodity markets


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1. India's GDP

Stock markets eventually depend on the health

of the economy, which is best captured in three

letters: GDP

So any slowdown in the economy will impact themarkets and moderate gains.


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2. Inflation

a double-edged sword

it is projected to remain high for most of 2011

food inflation will affect Indias consumption

higher inflation, higher the interest rates, which

means higher costs for corporates


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3. Crude prices Brent Crude has already hit $120 a barrel

Retail prices of petrol will rise even further, since

government isnt subsidising it any more

More fundamentally, higher crude price will hurtthe 2011-12 GDP growth, and in turn market

sentiments


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4. Scams & Frauds

CWG, Adarsh, 2G, it goes on

Scams affect the market negatively, and destroy

investor sentiments, national image

Evidenced by the Harshad Mehta Scam in 1990sand the Ketan Parekh Scam in 2000s


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2008 Jan :US Economy Crisis 2010 May: European Debt Crisis (PIGS)

2011 Jan-Feb : Middle East Political Crisis

2011 March 11 : Japan Natural Disasters


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