SYBFM-Equity MARKET-II

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Session-I

UNIT-1:DEVELOPMENTS IN THE INDIAN EQUITY DEVELOPMENTS IN THE INDIAN EQUITY MARKETMARKET

Domestic savings and investmentsDisinvestments FDI and foreign Institution InvestmentRole of Retail InvestorsShare price and share price volatilityRole of SEBI

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Domestic savings and

Investments

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Domestic savings and investments

Savings

Process of setting aside a portion of current income for future use, or the resources accumulated in this way over a given period of time. Savings may take the form of bank deposits and cash holdings or securities.

Savings form the backbone for investments viz., higher savings lead to higher investments and vice versa in accordance with the general perception about the macroeconomic balance in national accounts.

An economy can have different forms of savings of which household financial savings generally constitute the largest share in aggregate domestic savings. Other forms of savings comprise physical savings by households, savings by the private corporate sector and the public sector and foreign savings.

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Domestic savings Gross domestic savings are calculated as GDP less final consumption expenditure

(total consumption).

Gross Domestic Saving (GDS) of the Indian economy constitutes savings of public, private corporate and household sectors.

The estimates of savings both at overall and sectoral levels are finalized and disseminated by Central Statistical Organization (CSO).

At the sectoral level, savings estimates for the public sector are prepared by CSO, while Reserve Bank of India (RBI) prepares savings estimates for the private corporate sector on the basis of its company finance studies.

The savings of the household sector are estimated separately under financial assets and physical assets. RBI takes the responsibility of estimating the household savings in financial assets, while CSO estimates the household savings in physical assets.

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INVESTMENT Investment is defined as any use of resources intended to increase future

production output or income.

The use of resources/ assets to earn income or profits in future

It involves an individual or an organization placing or lending money in

vehicle, instrument or asset

• Such as property, commodity, stock, bond, financial derivatives or foreign

currency.

• That has certain level of risk and provides the possiblity of generating

returns over a period of time

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What is the Difference Between Saving and Investing Money? "savings" are usually put into the safest places or products that allow

you access to your money at any time. Examples include savings accounts, checking accounts, and certificates of deposit. At some banks and savings and loan associations your deposits may be insured by the Federal Deposit Insurance Corporation (FDIC). But there's a tradeoff for the security and ready availability of these savings methods: your money is paid a low wage as it works for you.

When you "invest," you have a greater chance of losing your money than when you "save." Unlike FDIC-insured deposits, the money you invest in securities, mutual funds, and other similar investments is not federally insured. You could lose your "principal," which is the amount you've invested. That’s true even if you purchase your investments through a bank. But when you invest, you also have the opportunity to earn more money than when you save. There is a tradeoff between the higher risk of investing and the potential for greater rewards.

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Disinvestments ,FDI and

Foreign Institution Investment(FII)

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Road Map for Presentation

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What is FDI & FII

FII Guidelines

Distinction between FDI & FII

Case Studies

FDI Guidelines

Background

Background: India Transformed !!India Transformed !!

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India -- the largest Democracy - one of the fastest growing economies in the World!

Slow rate of growth

Bureaucratic

Protected and slow

Small consumer markets

Weak infrastructure

…Yesterday

…Today

Strong macro economic fundamentals

Encouraging foreign investment

Outsourcing destination

Growing consumerism

Impetus on infrastructure development

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ADVANTAGES INDIA HAS TO OFFER

Stable democratic environment over 60 years of independence

Large and growing market World class scientific, technical and

managerial manpower Cost-effective and skilled labour Abundance of natural resources Large English speaking population Well-established legal system with

independent judiciary Developed banking system and vibrant

capital market Well developed accountancy, legal,

actuarial and consultancy profession

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What is FDI & FII

Foreign Direct Investment (FDI):

1.FDI stands for Foreign Direct Investment, a component of a country's national financial accounts.

2.Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations.

3.It does not include foreign investment into the stock markets.

4.FDI is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially "hot money" which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly.

Foreign Institutional Investment (FII):

1. FII denotes all those investors or investment companies that are not located within the territory of the country in which they are investing.

2.“SEBI’s definition of FIIs presently includes foreign pension funds, mutual funds, charitable/endowment/university funds etc. as well as asset management companies and other money managers operating on their behalf.”

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Distinction between FDI and FII FDI

1. It is long-term investment

2.Investment in physical assets

3.Aim is to increase enterprise capacity or productivity or change management control

4. Leads to technology transfer, access to markets and management inputs

5.FDI flows into the primary market

6.Entry and exit is relatively difficult

7.FDI is eligible for profits of the company

8.Does not tend be speculative

9.Direct impact on employment of labour and wages

10.Abiding interest in mgt.

FII

1.It is generally short-term investment

2.Investment in financial assets

3. Aim is to increase capital availability

4. FII results in only capital inflows

5.FII flows into the secondary market

6.Entry and exist is relatively easy

7.FII is eligible for capital gain

8.Tends to be speculative

9.No direct impact on employment of labour and wages

10.Fleeting interest in mgt.

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Overview

Foreign Direct Investment Policy…

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• Foreign Direct Investment (‘FDI’) – cross border investment with an objective to establish ‘lasting interest’

• Objective - to encourage FDI to promote industrial & socio-economic development; supplement domestic capital/ technology

• Foreign investment in India is regulated by Government of India’s FDI policy. The FDI guidelines administered by the Ministry of Commerce and Industry.

• Department of Industrial Policy & Promotion (‘DIPP’), Foreign Investment Promotion Board (‘FIPB’) and Secretariat of Industrial Assistance (‘SIA’) regulate the FDI Policy

• GoI has set up the Foreign Investment Implementation Authority (FIIA) to facilitate quick translation of Foreign Direct Investment (FDI) approvals into implementation, to provide a one-window to foreign investors by helping them obtain necessary approvals, sort out operational problems and meet with various Government agencies

• Administrative and compliance aspects of FDI monitored by RBI

• Since 1991, policy has been liberalized substantially to facilitate foreign investment

Foreign Direct Investment Snapshot

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5549

15730

2457927309

22963

0

5000

10000

15000

20000

25000

30000

2005-06 2006-07 2007-08 2008-09 2009-10** April 2009 – January 2010

184%

56%

Figures in

Million US$

• Mauritius, Singapore and Cyprus are the favorite jurisdictions for investment into India

• Foreign investment (‘FI’) from Mauritius constituting 43%* of India’s total FI *as per information

in the Press

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India's Hottest FDI Destinations

1. Maharashtra Maharashtra received the lion's share of the FDI $2.43 billion (Rs 11,154 crore), which is

35% of the total FDI inflows in to the country,.2. National Capital Region

NCR received $1.85 billion (Rs 8,476 crore) in FDI during the period. The region accounted for 20% of the total FDI.

3. West Bengal, Sikkim, Andaman & Nicobar IslandsThese states attracted the third highest FDI inflows worth $1.416 billion (Rs 6,050 crore)

4. Karnataka - $936 million (Rs 4,333 crore) 5. Punjab, Haryana, Himachal Pradesh - $904 million (Rs 4,141 crore)

Data: Jan – Jun 2010

The Roadmap so far…

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Allowed selectively up to 40%

Up to 51% under ‘Automatic

Route’ for 35 Priority Sectors

Up to 74/51/50% in 111 Sectors under

‘Automatic Route’100% in some sectors

Up to 100% under ‘Automatic Route’ in

all sectors except a small negative list

Sectoral caps raised;Conditions relaxed;

Pre 1991

1991 1997

2000 Post 2000

…Foreign Direct Investment Policy…

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Only for cases other than Automatic Route and those mentioned in sectoral policy

Applies to cases with existing venture/ tie up in ‘same filed’

Applies to investment over 24% in SSI reserved items

Government Route

Allowed for Most sectors

Limits : Sectoral caps/ stipulated sector specific guidelines

Inward remittances through proper banking channels

Pricing valuations prescribed

Post facto filing with 30 days of fund receipt

Filings within 30 days of share allotment

Includes Technical Collaboration/ Brand Name/ Royalty

Automatic Route

FDI Guidelines for Investing in Indian Wholly Owned Subsidiary / Joint Venture

Foreign Investment Promotion Board (FIPB)

No Prior

Regulatory Approval but only Post Facto Filings to RBI, through AD

…Foreign Direct Investment Policy

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Existing Airports

100%

Asset Reconstruction Companies

49%

Titanium Minerals

100%

Broadcasting (a)

Cigars & Cigarettes

100%

Courier

100%

Print Media (a)

26%

Single brand retailing

51%

Agriculture (b)

Atomic energy

Retail trading (except single brand up to 51%)

Lottery, betting and gambling

Chit fund, Nidhi company

Trading in Transferable Development Rights

Negative List (Illustrative)

Prior Approval (Illustrative)

NBFC (minimum capitalization norms)

IT / ITes

Financial services(a)

Telecom Sector (74% cap)(a)

Insurance (26 % cap)(a)

Real Estate(a)

Special Economic Zones

Infrastructure

Shipping

Manufacturing sector

Hotels and tourism

Automatic Route (Illustrative)

Note: (a) Sector specific guidelines (b) Subject to certain exceptions

FDI limits – Illustrative list

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Recent Developments

Setting the context…

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• Contribution of FDI in India’s economic development is an

acknowledged fact.

• From inception policy subject to extensive

amendments from time to time through Press Notes,

circulars and clarifications

• Press Note 2,3 and 4 of 2009 issued to provide clarity on

indirect FDI and downstream investment

• FM stressed the need for a consolidated FDI policy in

Budget 2010-11

• Draft consolidated policy issued in late 2009 for public

comments

• Consolidated FDI policy issued effective from 1 April,

2010

Consolidated FDI Policy – Salient Features

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• Consolidated document of all foreign investment policies /regulations under FEMA, Press Notes, Press Releases and Clarifications issued by DIPP

• Underlying rationale to promote FDI through a policy framework that is transparent, predictable, simple and clear and which reduces regulatory burden

• As an investor friendly measure, a new Circular is proposed to be issued every six months

• Press Notes/Press Releases/Clarifications on FDI in force as of 31 March 2010 will stand rescinded. Savings for actions taken under earlier press notes

• Use of chapters, headings and definitions

• Two kinds of foreign investment – (i) FDI and (ii) Foreign Portfolio Investment (FPI)

FDI – strategic long term relationship and establish a lasting interest

FPI – no intention to influence the management of the investee entity

FDI Policy – Principles

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• Capital defined as Equity, Compulsorily Fully Convertible Preference Shares and Compulsorily Fully Convertible Debentures

• Warrants, partly paid up shares other hybrid instruments not permitted for FDI

• Investment in other instruments such as:

− Non Convertible Preference Shares/ Debenture (‘NCP’) − Optionally Convertible Preference Shares/ Debentures

(‘OCP’)− Partially Convertible Preference Shares/ Debentures

(‘PCP’)

treated as External Commercial Borrowings (‘ECB’) - subject to ECB guidelines

• Existing NCP/ OCP/ PCP on cut off date outside sectoral cap till current maturity

FDI Policy – Principles…contd.

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• FDI permitted in:

− Indian companies including micro & small enterprise − Partnership firm/ proprietorship concern – only by NRI/PIOs− Trust only in the form of VCFs

• Not permitted in LLPs or any other entities – under consideration

• Investment by FIIs permitted upto 10% for individual FII and 24% in aggregate

• Pricing of capital instruments (including conversion price for convertible instruments) is now required to be decided upfront at the time of issue of instruments

• Investment by FVCI in DVCF set up as trust would now require specific Government approval; FVCI can directly invest subject to FDI policy

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Procedural Aspects

FDI Policy – Procedural Aspects

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• Intimation of receipt of share application money – within 30 days

• Purpose of inward remittance clearly stated on FIRC

• Allotment of shares within 180 days of receipt of funds

• Funds against which shares not allotted to be refunded

• Reporting in Form FC GPR within 30 days of allotment

• In case of Approval route, application to FIPB along with supporting documents

• All applications to be placed before FIPB within 15 days

• FIPB empowered to prioritise applications based on sector, export potential etc.

• Violations of regulations attract penal provisions under FEMA

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Sector Specific Guidelines

Sector Specific Guidelines Prohibited sectors

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• FDI not allowed in the following:

− Retail trading (except single brand)

− Atomic Energy

− Lottery business

− Gambling & Betting

− Chit fund and Nidhi company

− Trading in Transferable Development Rights

− Real Estate business or construction of Farm Houses

− Sectors not opened for private sector investments

• Prohibition extended to foreign technology collaboration including licensing for franchisee, trademark, brand name or management contract for lottery, betting and gambling business

Sector Specific Guidelines Telecommunication

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• FDI allowed in the following (illustrative):

− Basic and cellular

− Unified Access Services

− National/ International Long Distance

− Global Mobile Personal Communications Services (GMPCS)

− Other value added telecom services

• FDI in ISPs without gateways now capped at 74% in line with DoT guidelines of 2007

• Subject to guidelines issued DOT

• FDI Limits:

Automatic Route Approval Route

Upto 49% Upto 74%

Sector Specific Guidelines Private sector banks/ Civil Aviation

No change in existing conditions

FDI permitted under automatic route upto 49% and thereafter upto 74% under Approval Route

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Banks

Civil Aviation

• No change in existing conditions

• FDI in Non-scheduled air transport services/ non-schedule airlines, Chartered and Cargo airlines permitted under automatic route upto 49% and thereafter upto 74% under Approval Route

Sector Specific Guidelines Broadcasting

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• In the Broadcasting sector, all FDI are under the Approval route

• For reckoning the FDI limits, FII investment also to be considered

• Subject to guidelines issued by I&B ministry

• FDI permitted in broadcasting sector:

Activity Limit

Radio 20%

Cable Networks 49%

Direct to Home* 49%

Uplinking news/ current affair TV channel**

26%

Uplinking non news/ current affair TV channel

100%* FDI component not to exceed 20%

** May be raised to 49% as per recent press reports

Sector Specific Guidelines Print Media

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• FDI is permitted under Approval route based on nature of publication

• Investment subject to sectoral policy issued by Ministry of Information and Broadcasting

• FDI limits on publications:Activity Limit

Newspapers/ periodicals dealing with news and current affairs*

26%

Scientific magazines/ specialty journals/ periodicals

100%

* May be raised to 49% as per recent press reports

INSURANCE• FDI upto 26% allowed on the automatic route

• However, license from the IRDA has to be obtained & There is a proposal to increase this limit to 49%.

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• FDI upto 100% is permitted under the automatic route for manufacture of drugs and pharmaceuticals (The following is the current position)

• i. FDI upto 74% in the case of bulk drugs, their intermediates Pharmaceuticals and formulations (except those produced by the use of recombinant DNA technology) would be covered under automatic route.

• ii. FDI above 74% for manufacture of bulk drugs will be considered on case to case basis.

• Foreign Investment up to 100% is allowed in green field projects under automatic route • Foreign Direct Investment is allowed in existing projects• - up to 74% under automatic route • - beyond 74% and up to 100% subject to Government approval

DRUGS & PHARMACEUTICALS

AIRPORTS

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INFRASTRUCTURE 100% FDI is permitted for the following activities:

Electricity Generation (except Atomic energy) Electricity Transmission Electricity Distribution Mass Rapid Transport System Roads & Highways Toll Roads Vehicular Bridges Ports & Harbors Hotel & Tourism

FDI in Investing companies in infrastructure/service sector (except telecom sector) will not be counted towards sectoral cap provided:

- Such investment is up to 49% & - The management of the company is in Indian hands. FDI in such companies will be through the FIPB route

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What are Foreign Investors looking for?

Good projects Demand Potential Revenue Potential Stable Policy Environment/Political Commitment Optimal Risk Allocation Framework

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•Rate of interest

•Speculation

•Profitability

•Costs of production

•Economic conditions

•Government policies

•Political factors

Factors affecting foreign

investment

Foreign Institutional Investors FIIs can individually purchase upto 10% and collectively upto 24% of the paid-up share

capital of an Indian company

This limit of 24% can be increased to sectoral cap/ statutory limit applicable to the Indian company by passing a board resolution/shareholder resolution

FIIs can purchase shares through open offers/private placement/stock exchange

Shares purchased by FII through stock exchange cannot be sold through a private arrangement

Proprietary funds, foreign individuals and foreign corporates can register as a sub- account and invest through the FII. Separate limits of 10% / 5% is available for the sub-accounts

FIIs can raise money through participatory notes or offshore derivative instruments for investment in the underlying Indian securities

FIIs in addition to investment under the FII route can invest under FDI route

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Investment limits on Equity & Debt investments by FII

FII, on its own behalf, shall not invest in equity more than 10% of total issued capital of an Indian company.

Investment on behalf of each sub-account shall not exceed 10% of total issued capital of an India company.

For the sub-account registered under Foreign Companies/Individual category, the investment limit is fixed at 5% of issued capital.

These limits are within overall limit of 24% / 49 % / or the sectoral caps a prescribed by Government of India / Reserve Bank of India.

investment limits on debt investments by FII For FII investments in Government debt, currently following limits are applicable:

100 % Debt Route US $ 1.55 billion 70 : 30 Route US $ 200 million Total Limit S $ 1.75 billion

For corporate debt the investment limit is fixed at US $ 500 million.

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PARTICIPATORY NOTESWhat is P-Note:

PNs are instruments issued by registered FIIs to overseas investors, who wish to invest in the Indian stock markets without registering themselves with SEBI.

Why is P-Note:

More than 30% of foreign institutional money coming into India is from hedge funds. Hedge funds, which thrive on arbitrage opportunities, rarely hold a stock for a long time.

P-Notes are issued to the real investors on the basis of stocks purchased by the FII. To monitoring investments through P Notes, Sebi decided that FIIs must report P-Notes details.

Reporting by FIIs

P-Notes issued - 7th day of the following month.

The FII merely investing for themselves through P-Notes – Quarterly basis

FIIs who do not issue PNs but have trades – File 'Nil' undertaking on a quarterly basis.42

Advantages of FII Enhanced flows of equity capital FIIs have a greater appetite for equity than debt in their asset structure. It improve

capital structures. Managing uncertainty and controlling risks. FII inflows help in financial innovation and development of hedging instruments. Improving capital markets. FIIs as professional bodies of asset managers and financial analysts enhance competition

and efficiency of financial markets. Equity market development aids economic development. By increasing the availability of riskier long term capital for projects, and increasing

firms’ incentives to provide more information about their operations, FIIs can help in the process of economic development.

Improved corporate governance. FIIs constitute professional bodies, improve corporate governance.

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Disadvantages of FII

Problems of InflationProblems for small investorAdverse impact on ExportsHot Money

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FII Investments & Market Reaction

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While strong inflow of funds from foreign institutional investors (FIIs) has been a reason to

cheer, it could turn into a nightmare and if the global investors make a sudden exit can send the bourses

crashing.

FII Inflows Vs Sensex

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FII Investment from 2005 - 2010 BSE Sensex

FII Investment Vs Sensex

FII average holding in BSE 500

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Case Studies and Recommendations

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UBS Fraud case - The funds held in the accounts of the two companies (ADAG

Group )opened in UBS with the approval of RBI were transferred to another account without RBI’s approval, by obtaining overdrafts against cash collateral security provided through the funds.

- Thereafter, substantial amounts were transferred to certain accounts belonging to 8-10 diamond dealers based in India and Belgium..

- The funds were then passed on from the accounts of the diamond merchants to two funds that in turn invested them in the Indian stock market through FIIs.

- Swiss bank UBS has been fined £8 million by UK's Financial Services Authority (FSA)

- ED is probing the matter because the transactions may amount to violation of Indian foreign exchange and anti-money laundering laws.

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Will the Vodafone case hit FDI?

Case : Show cause notice to Vodafone was issued by Indian Revenue Authorities arguing that they had failed to discharge withholding tax obligation with respect to tax on gains made by Hutch on sale of shares to Vodafone

The Bombay High court said Vodafone Group Plc is liable for an estimated $2.6 billion in taxes for its 2007 acquisition of one of India's largest mobile phone companies.

Decision as well as the tax department’s approach creates tremendous uncertainty on what aspects of an offshore transaction may fall within the Indian tax net.

Tax practitioners see inherent bottlenecks while computing tax liability on such deals. The Vodafone judgement will definitely impact foreign investments into India. This is bound to affect FDI/M&A/PE deals as companies would ascribe a higher tax

weight age risk while entering India. Offshore deals may also start drying up. But due to growing image and future prospectus of country, we are developing as a

prominent nation and FDI would get much strong over the years despite any such issues.

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Recommendations for India Do away with too many caps in the overall regulatory regime.

Increase FDI limit for Insurance Sector to 49% from current 26%.

Increase FDI limit for Retail Sector.

Allow FII 100% ownership

Easy access to Foreign Investor by simplifying the approval procedure and industrial license

Liberalize the locking period for FII & FDI

Allow FDI in investment companies

"Better Investment Climate" Need of the Hour.

Liberalise the economic policies further so as to overcome the fiscal deficits faced by Indian economy

Invite corporate giants from countries like USA, China and south Korea

Maintain a balance between domestic companies and foreign companies so as domestic companies could survive in front of foreign giants.

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DisinvestmentWhat is Disinvestment?

In general terms Disinvestment(Dis-investment) is simply selling the equity(share) invested by the government in Public Sector Enterprises(PSU).PSUs are enterprises which are either owned completely by the government or whose shares are maximum owned by the government(51% or above).Examples include BHEL,ONGC etc.

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Why is it carried out?

If there is no progress achieved by the PSU or if there are no profits obtained (some times government may not be able to recover the investment capital also) by it, government sells some part of the equity to private companies. The funds raised by this sale can be used to develop other underperforming PSUs.

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Process of Disinvestment

There are two ways of disinvestment.Transfer of complete management to private enterprises.

Modern Food Industries, Bharat Aluminum Company Limited (BALCO), VSNL, Centaur Hotel Airport are examples of this kind.

Partial selling of sharesHere government sells some part of shares. But still it retains majority of them (51% or higher).This has been adopted in majority of cases.

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Advantages

To achieve greater inflow of private capital.This revenue can be used to compensate the deficit finance.

Allows new firms to enter into the market and thus increases competition.

Brings the low productivity PSUs back on track thereby improving the quality of goods, eliminating excessive manpower utilization and enabling high profits.

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Disadvantages Loss of public interests

PSUs are resources of the nation. They belong to the people. By selling them to private companies, government is seriously affecting the people's welfare.

Fear of foreign controlSelling equities to foreign companies result in serious consequences shifting the nation's wealth, power and control to outsiders.

Issues with workersThe jobs of Lakhs of workers in the PSUs will fall in danger by privatization.

Less number of biddersEven though government plans to disinvest, there are actually less number of people willing to place their bids.

Apart from these, it is the government and not PSUs who receive funds from disinvestment. This raises conflicts between the government and the employment union of the PSU.

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Example of Disinvestment-The case of Maruti Udyog LtdMaruti Udyog Ltd. has been raised as an example where

disinvestment has indeed worked. Approximately 54% of this enterprise was disinvested to Suzuki of Japan. As of May 10, 2007, Govt. of India sold its complete share to Indian financial institutions. With this, Govt. of India no longer has stake in Maruti Udyog.

The success of this initiative led the government to believe that the presence of an established giant as the strategic partner would raise the price of the shares. This logic was used in the selling off of the Indian Petrochemical Corporation to the Reliance and VSNL to Tata. The flip side is that the giants became larger rising to the position of near monopolies. Reliance, for instance, controls 68% of the market in petro-chemicals.

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SEBI (Securities & Exchange Board Of India)

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SEBI is the regulator for

Securities Market in India.

Established by the Government of India in 1988 through an executive resolution

Was subsequently upgraded as a fully autonomousbody (a statutory Board) in the year 1992 with the passing of the SEBI Act on 30th January 1992.

In place of Government Control, a statutory and autonomous regulatory board with defined responsibilities, to cover bothdevelopment & regulation of the market, and independent powers have been set up.

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How SEBI came into picture??

The World Bank and the IMF have introduced a benchmark i.e., Financial Services Assessment Programme (FSAP) to strengthen the monitoring of financial systems.

The FSAP is designed to foster growth by promoting financial system soundness and financial sector diversity.

The mission of SEBI is to make India as one of the best securities market of the world and SEBI as one of the most respected regulator in the world. SEBI endeavors to achieve the standards of FSAP.

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Why do we need a regulatory body for Investor protection in India?

India is an ` informationally ' weak market

Boosting capital market demands restoring the confidence of lay investors who have been beaten down by repeated scams

Progressively softening interest rates and an under performing economy have eroded investment options, and require enhanced investing skills.

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SEBI is headquartered in the popular business district of Bandra-Kurla complex in Mumbai

Regional offices

Northern New Delhi

Eastern Kolkata

Southern Chennai

Western Ahmedabad

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Basic objectives of the Board were identified as:

· to protect the interests of investors in securities;· to promote the development of Securities Market;· to regulate the securities market and· for matters connected therewith or incidental thereto.

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Functions and responsibilities:

SEBI has to be responsive to the needs of three groups, which constitute the market:

•the issuers of securities•the investors•the market intermediaries.

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POWERS & FUNTIONS OF SEBI

1. FUNCTIONS OF SEBI

Regulation of business in the stock exchanges

Registration & regulation of the working of intermediaries

Registration & regulation of mutual funds, venture capital funds & CI schemes

Promoting & regulating self regulatory organisations

Prohibiting fraudulent & unfair trade practices in the securities market

Prohibition of insider trading

Investor education & training of intermediaries

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Inspection & inquiries

Regulating substantial acquisition of shares & takeovers

Regulating such functions & exercising such powers under the provision of SC(Regulation) Act, 1956, as maybe delegated to it by the central government.

Levying fees or other charges for carrying out the purposes of this section

Conducting research for the above purpose

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2.POWER OF INSPECTIONThe board may undertake inspection of any book, register

or other documents of any listed public company if board believes that company is indulging in unfair trade practices.

3. POWERS OF COURT The discovery & production of books of a/c at such place

and time as board specifies and later on inspecting them. Enforcing attendance of persons and their examination

under oath. Issuing commissions for the examination of witness or

documents.

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4.POWER IN THE INTERESTS OF SECURITIES MARKETFor the interest of investors, the board can take any

of measures like: Suspend trading of any security in a stock

exchange. Prohibit any person associated with securities

market to buy, sell or deal in securities. Suspend any office bearer of stock exchange or

other organization from holding his position. Retain the proceeds of any transaction which is

under investigation.

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5. POWER REGARDING INTEREST OF INVESTORS

SEBI may protect investors by specifying regulations:Relating to issue of capital, transfer of securities

and other matters and how these shall be disclosed by cos.

prohibit any co from issuing prospectusSpecify conditions for issue of prospectus.Specify requirements for listing and transfer of

securities and other incidental matters.

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6.POWER TO ISSUE DIRECTIONSIn matters of investor protection & orderly development of

securities market.Issue directions to any person, class of persons or

company to secure the proper mgt

7.POWERS OF INVESTIGATION Where board believes that securities are being dealt in a

manner detrimental to investors or securities market. Investing authority may ask company manager, M.D, and

any intermediary to produce required documents.

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Contd..

These documents can held in custody by investing authority for 6 months & returned thereafter.

Investigating authority may examine the required person of company or any intermediary under oath.

Failing on the above issues, he shall be punishable with imprisonment up to 1 yr or fine of Rs. 1 crore or both and may extend fine of Rs. 5 lacs for every day during which the refusal continuous.

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8. REGISTRATION OF STOCK BROKERS, SUB- BROKERS, SHARE TRANSFER AGENTSNo stock broker, share transfer agent, merchant banker,

underwriter or other intermediary can buy, sell or deal in securities except under conditions of certificate of registration obtained from board.

Application for registration should be in proper manner and required fees should have been paid.

The board hold the right for cancellation of certificate of registration after giving the person a reasonable opportunity of being heard.

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9. PROHIBITION OF MANIPULATIVE &DECEPTIVE DEVICES, INSIDER TRADING AND SUBSTANCIAL ACQUISATION OF SECURITIES OR CONTROLNo person can use or employ any deceptive means

regarding issue, purchase or sale of securities.

Engage in any act or practice of business which would be a fraud upon any person and not in provisions of the act.

Engage in insider trading

No person can acquire, control of company or securities more than the percentage of equity share capital of the company.

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Guidelines by SEBI

Guidelines for issue of debt instruments

Guidelines for e-IPO’s

Other measures Guidelines for merchant bankers

Guidelines for euro issues

Guidelines for MF’s & AMC’s

Guidelines for FII’s

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Guidelines for developing financial institutions for disclosure & investor protection.

Guidelines for book building, ESOP, employee stock purchase scheme

Guidelines for preference issues

Guidelines for external commercial borrowings

Regulatory measures for stock brokers, sub brokers, underwriters, portfolio manager, registrar to an issue & share transfer agent, insider trading, banker to an issue, depositories participant, Venture capital fund etc.

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SHARE PRICE AND SHARE PRICE VOLATILITY

Stock prices are changed every day by the market. Buyers and sellers cause prices to change as they decide how valuable each stock is.

share prices change because of supply and demand. If more people want to buy a stock than sell it - the price moves up. Conversely, if more people want to sell a stock, there would be more supply (sellers) than demand (buyers) - the price would start to fall

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Volatility in the stock return is an integral part of stock market with the alternating bull and bear phases. In the bullish market, the share prices soar high and in the bearish market share prices fall down and these ups and downs determine the return and volatility of the stock market.

Volatility is a symptom of a highly liquid stock market. Pricing of securities depends on volatility of each asset. An increase in stock market volatility brings a large stock price change of advances or declines. Investors interpret a raise in stock market volatility as an increase in the risk of equity investment and consequently they shift their funds to less risky assets.

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As a concept, volatility is simple and intuitive. It measures variability or dispersion about a central tendency. To be more meaningful, it is a measure of how far the current price of an asset deviates from its average past prices. Greater this deviation, greater is the volatility. At a more fundamental level, volatility can indicate the strength or conviction behind a price move.

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Volatility. The term volatility indicates how much and how quickly the value of an investment, market, or market sector changes.

For example, because the stock prices of small, newer companies tend to rise and fall more sharply over short periods of time than stock of established, blue-chip companies, small caps are described as more volatile.

The volatility of a stock relative to the overall market is known as its beta, and the volatility triggered by internal factors, regardless of the market, is known as a stock's alpha.

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What drives equity volatility?Fundamental factors Macroeconomic stability – volatility of GDP growth Stabilizing or destabilizing monetary policy, fiscal policy. Competition on markets - more competition means more uncertain earnings Leverage of firms Indian firms that graduate into MNCs Crises: currency crisis, political crises

Factors internal to the securities markets Liquidity of the market: be able to absorb shocks to the Order flow. Securities trading issues: “adequate” supply of rational Traders - individuals, hedge funds, arbitrageurs. Crises: payments crisis, scandal on the market, regulatory Crackdown giving adverse shocks to liquidity.

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What can help reduce equity market volatility?

Fundamental factors

Reduction in GDP growth volatility Firms with more equity financing Indian firms that are MNCs Avoid currency crisis, avoid political crises.

Factors internal to the securities markets

More liquidity More rational traders Avoid crises : payments crisis, scandal on the market, Regulatory crackdown giving adverse shocks to liquidity.

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Estimation of Stock Volatility

Stock Volatility=Standard Dev(Price change(%)* SQRT(Calendar Months or Days)

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Role of Retail InvestorsLong Term Investors

retail and mass customers have a longer tenure AUM than high networth individuals (HNIs).

Small-ticket-size investors account for a large part of ELSS and SIP investments, which are inherently long term. Most of these investors are likely to have done their own research and are comfortable investing in products for a longer duration.

Fundamental InvestorsInvest in companies with good fundamentals Bring efficiency to capital market

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Thank You

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