trends of c.p. market

8/7/2019 Trends of c.p. Market

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TRENDS OF C.P. MARKET INTRENDS OF C.P. MARKET ININDIA IN LAST DECADEINDIA IN LAST DECADE

PRESENTED BY-

SHARAD TEWARI (852)

RAJESH MISHRA (846)

MAYANK PODDAR (828)

MD. SAHIR ALAM (811)

MUKESH KUMAR(809)


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introductionintroductionIt was introducedin India in1990with a view toenablinghighly

ratedcorporate borrowers/ todiversify their sources ofshort-

term borrowings andtoprovide

an additional instrumentto

investors


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ISSUER OF COMMERCIALISSUER OF COMMERCIAL

PAPERPAPERCorporate,primary dealers (PDs) andthe All-IndiaFinancial Institutions (FIs) areeligibletoissue CP.

y CP may beissuedto andheld by individuals,bankingcompanies,othercorporate bodiesregisteredorincorporatedin India and

y unincorporated bodies, Non Resident Indians(NRIs) and Foreign Institutional Investors (FIIs).

y However,investment by FIIs would be withinthe

limits setfortheirinvestments by Securities andExchange Boardof India (SEBI).


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ELIGIBILITY CRITERIA FORELIGIBILITY CRITERIA FOR

ISSUING COMMERCIALISSUING COMMERCIAL

PAPERPAPER

y CPs areissued by companies intheformof

usancepromissory note,redeemable atpar

totheholderonmaturity.

y Thetangiblenet worthoftheissuing

company should benot less than Rs.4

crores.y Workingcapital (fund based) limitofthe

company shouldnot be less than Rs.4 crores


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CP ISSUE EXPENSESCP ISSUE EXPENSESCP is issued at a discount to the face value. The following costsCP is issued at a discount to the face value. The following costsare involved in the issue of CP:are involved in the issue of CP:

1.Stamp duty 0.2% - If placed through banks

1.0% - If placed through merchant bankers

2.Rating fees* 0.10% (subjectto a minimumofRs.100,000)

(for a ratingfrom CARE)

3. Issuing and paying agent fee 0.1%

(All charges are on per annum basis and are subject to changes from time to time)


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MATURITY CRITERIAMATURITY CRITERIA

y CP can beissuedformaturities between aminimumof15days and a maximumuptoone yearfromthedateofissue.

y

CP can beissuedindenominations ofRs.5lakhormultiples thereof. Amountinvestedby singleinvestor shouldnot be less thanRs.5 lakh (face value).

y Thetotal amountofCP proposedto beissued should beraised within a periodoftwo Weeks fromthedateon whichtheissueropens theissuefor subscription.


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Mode of IssuanceMode of Issuance

y CP can beissuedeitherintheformofapromissory noteorin a dematerialisedformthrough any ofthedepositories

approved by andregistered with SEBI.y CP will beissued at a discounttoface

value as may bedetermined by theissuer.

y CP may beissuedon a singledateorinparts ondifferentdates providedthatinthe lattercase,each CP shall havethesamematurity date.


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AdvantagesAdvantages

y CP is a simpleinstrument andhardly involves anydocumentation.

y Itis flexibleinterms ofmaturities whichcan betailoredtomatchthecashflow oftheissuer.

y A well ratedcompany candiversify its short-term sourcesoffinancefrom banks tomoney market atcheapercost.

y Theinvestors cangethigherreturns than whatthey cangetfromthe banking system.

y Companies which are abletoraisefunds through CPs

have betterfinancial standing.y The CPs areunsecured andthere areno limitations on

theend-useoffunds raisedthroughthem.

y As negotiable/transferableinstruments,they arehighlyliquid


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SIGNIFICANCESIGNIFICANCE

Commercial paper Involves Less

Documentation

DiversificationofSources ofFinance

High Rate OfReturn

Unsecured Instrument

High Liquidity


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Commercial Paper OutCommercial Paper Out

standing Amountstanding Amount

(Rs.in Crores)(Rs.in Crores)

Commercial Paper Out standing Amount

(Rs.in Crores)


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Year ended Total

Outstanding

*Rate of Discount(Percent)

1993 March 31 577 15.76 16.00

1994 March 31 3264 11.01 12.00

1995 March 314 604 14.00 15.00

1996 March 31 76 20.20 20.15

1997 March 31 646 11.25 12.25

1998 March 31 1500 14.22 15.50

1999 March 31 4770 10.05 11.50

2000 March 31 5663 10.00 12.00

2001 March 31 5846 08.75 11.25

2002 March 31 7224 7.41 10.25

2003 March 31 5749 6.00 7.75

2004 March 31 9131 4.70 6.50

2005 March 31 13419 5.55 6.33


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Recent Trends:Recent Trends:

y Initially,the CP amountoutstandingrosefrom Rs.86 crore as attheendoffinancialyear1989-90to Rs. 577crore .

y theendofthe year1992-93 (Table I) andtheCP outstanding was declinedto Rs.76 croressincetypical discountrate was touchedto20.20 20.15 in1995-96.

y Following various relaxations intheterms

andconditions forissueofCP,y CP issuances gatheredmomentumthere

after andreached Rs. 7,224 crore by end-March2002.


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ContConty During January-October2003,themarketexperienced

some sluggishness.y Issuances ofCP haveincreasedinrecentperiod

followingincreasinginvestmentinterests seenfrom

mutual funds and

y costeffectiveness inissuances ofCP. Accordingly,the

outstanding amountofCP increased substantially from

the level ofRs.9,131crorein March2004 to Rs. 12,107

crore by December2004.

y This is thehighestever level achieved by the CP market

sinceits inception. Thereasons forthegrowthofCPmarketinrecentdays arecompanies areraisingfunds

through CP atinterestrates which areclosetothe

rates at which banks lendtothe RBI throughthedaily

repo


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trends of c.p. market

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