Final Capital Market. (1) (1)

CHAPTER – 1 INTRODUCTION

1.1 MEANING

The capital market (securities markets) is the market for securities, where

companies and the government can raise long-term funds. The capital market includes the

stock market and the bond market. Financial regulators, oversee the capital markets in

their respective countries to ensure that investors are protected against fraud. The capital

markets consist of the primary market, where new issues are distributed to investors, and

the secondary market, where existing securities are traded. Capital market deals with

medium term and long term funds. It refers to all facilities and the institutional

arrangements for borrowing and lending term funds (medium term and long term). The

demand for long term funds comes from private business corporations, public

corporations and the government. The supply of funds comes largely from individual and

institutional investors, banks and special industrial financial institutions and Government.

Capital markets are financial markets for the buying and selling of long-term debt or

equity-backed securities. These markets channel the wealth of savers to those who can

put it to long-term productive use, such as companies or governments making long-term

investments. Financial regulators, such as the UK's Bank of England (BoE) or the U.S.

Securities and Exchange Commission (SEC), oversee the capital markets in their

jurisdictions to protect investors against fraud, among other duties.

Modern capital markets are almost invariably hosted on computer-based electronic

trading systems; most can be accessed only by entities within the financial sector or the

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treasury departments of governments and corporations, but some can be accessed directly

by the public. There are many thousands of such systems, most serving only small parts

of the overall capital markets. Entities hosting the systems include stock exchanges,

investment banks, and government departments. Physically the systems are hosted all

over the world, though they tend to be concentrated in financial centres like London, New

York, and Hong Kong. Capital markets are defined as markets in which money is

provided for periods longer than a year.

A key division within the capital markets is between the primary markets and secondary

markets. In primary markets, new stock or bond issues are sold to investors, often via a

mechanism known as underwriting. The main entities seeking to raise long-term funds on

the primary capital markets are governments (which may be municipal, local or national)

and business enterprises (companies). Governments tend to issue only bonds, whereas

companies often issue either equity or bonds. The main entities purchasing the bonds or

stock include pension funds, hedge funds, sovereign wealth funds, and less commonly

wealthy individuals and investment banks trading on their own behalf. In the secondary

markets, existing securities are sold and bought among investors or traders, usually on an

exchange, over-the-counter, or elsewhere. The existence of secondary markets increases

the willingness of investors in primary markets, as they know they are likely to be able to

swiftly cash out their investments if the need arises.

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1.2 STRUCTURE OF INDIAN CAPITAL MARKET WITH DIAGRAM

Broadly speaking the capital market is classified in to two categories. They are the

Primary market (New Issues Market) and the Secondary market (Old (Existing) Issues

Market). This classification is done on the basis of the nature of the instrument brought in

the market. However on the basis of the types of institutions involved in capital market, it

can be classified into various categories such as the Government Securities market or

Gilt-edged market, Industrial Securities market, Development Financial Institutions

(DFIs) and Financial intermediaries. All of these components have specific features to

mention. The structure of the Indian capital market has its distinct features. These

different segments of the capital market help to develop the institution of capital market

in many dimensions. The primary market helps to raise fresh capital in the market. In the

secondary market, the buying and selling (trading) of capital market instruments takes

place. The following chart will help us in understanding the organizational structure of

the Indian Capital market.

I.THE FIRST WAY IN WHICH CAPITAL MARKET IN INDIA IS CLASSIFIED

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1. Government Securities Market :

This is also known as the Gilt-edged market. This refers to the market for government

and semi-government securities backed by the Reserve Bank of India (RBI). Gilt -

Edged market refers to the market for government and semi-government securities,

which carry fixed rates of interest. RBI plays an important role in this market.

2. Industrial Securities Market :

This is a market for industrial securities i.e. market for shares and debentures of the

existing and new corporate firms. Buying and selling of such instruments take place in

this market. This market is further classified into two types such as the New Issues

Market (Primary) and the Old (Existing) Issues Market (secondary). In primary

market fresh capital is raised by companies by issuing new shares, bonds, units of

mutual funds and debentures. However in the secondary market already existing i.e

old shares and debentures are traded. This trading takes place through the registered

stock exchanges. In India we have three prominent stock exchanges. They are the

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Bombay Stock Exchange (BSE), the National Stock Exchange (NSE) and Over The

Counter Exchange of India (OTCEI). It deals with equities and debentures in which

shares and debentures of existing companies are traded and shares and debentures of

new companies are bought and sold.

3. Development Financial Institutions (DFIs) :

This is yet another important segment of Indian capital market. This comprises various

financial institutions. These can be special purpose institutions like IFCI, ICICI, SFCs,

IDBI, IIBI, UTI, etc. These financial institutions provide long term finance for those

purposes for which they are set up. Development financial institutions were set up to

meet the medium and long-term requirements of industry, trade and agriculture. These

are IFCI, ICICI, IDBI, SIDBI, IRBI, UTI, LIC, GIC etc. All These institutions have

been called Public Sector Financial Institutions.

4. Financial Intermediaries :

The fourth important segment of the Indian capital market is the financial intermediaries.

This comprises various merchant banking institutions, mutual funds, leasing finance

companies, venture capital companies and other financial institutions. Financial

Intermediaries include merchant banks, Mutual Fund, Leasing companies etc. they help

in mobilizing savings and supplying funds to capital market. Financial Intermediaries

include merchant banks, Mutual Fund, Leasing companies etc. they help in mobilizing

savings and supplying funds to capital market.

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II.THE SECOND WAY IN WHICH CAPITAL MARKET IS CLASSIFIED IS AS

FOLLOWS :-

a) Primary Market

Primary market is the new issue market of shares, preference shares and debentures of

non-government public limited companies and issue of public sector bonds.

b) Secondary Market

This refers to old or already issued securities. It is composed of industrial security market

orstock exchange market and gilt-edged market.

These are important institutions and segments in the Indian capital market.

SEBI Regulates Indian Capital Market

For the smooth functioning of the capital market a proper coordination among

above organizations and segments is a prerequisite. In order to regulate, promote and

direct the progress of the Indian Capital Market, the government has set up 'Securities

and Exchange Board of India' (SEBI). SEBI is the supreme authority governing and

regulating the Capital Market of India.

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1.3 DIFFERENCE BETWEEN MONEY MARKETS AND CAPITAL

MARKETS

The money markets are used for the raising of short term finance, sometimes for

loans that are expected to be paid back as early as overnight. Whereas the capital

marketsare used for the raising of long term finance, such as the purchase of shares, or for

loans that are not expected to be fully paid back for at least a year.

Funds borrowed from the money markets are typically used for general operating

expenses, to cover brief periods of illiquidity. For example a company may have inbound

payments from customers that have not yet cleared, but may wish to immediately pay out

cash for its payroll. When a company borrows from the primary capital markets, often the

purpose is to invest in additional physical capital goods, which will be used to help

increase its income. It can take many months or years before the investment generates

sufficient return to pay back its cost, and hence the finance is long term.

Together, money markets and capital markets form the financial markets as the term is

narrowly understood. The capital market is concerned with long term finance. In the

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widest sense, it consist of a series of channels through which the savings of the

community are made available for industrial and commercial enterprises and public

authorities.

1.4 DIFFERENCE BETWEEN REGULAR BANK LENDING AND

CAPITAL MARKETS

Regular bank lending is not usually classed as a capital market transaction, even

when loans are extended for a period longer than a year. A key difference is that with a

regular bank loan, the lending is not securitized (i.e., it doesn't take the form of resalable

security like a share or bond that can be traded on the markets). A second difference is

that lending from banks and similar institutions is more heavily regulated than capital

market lending. A third difference is that bank depositors and shareholders tend to be

more risk averse than capital market investors. The previous three differences all act to

limit institutional lending as a source of finance. Two additional differences, this time

favoring lending by banks, are that banks are more accessible for small and medium

companies, and that they have the ability to create money as they lend. In the 20th

century, most company finance apart from share issues was raised by bank loans. But

since about 1980 there has been an ongoing trend for disintermediation, where large and

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credit worthy companies have found they effectively have to pay out less in interest if

they borrow direct from capital markets rather than banks. The tendency for companies to

borrow from capital markets instead of banks has been especially strong in the US.

According to Lena Komileva writing for The Financial Times, Capital Markets overtook

bank lending as the leading source of long term finance in 2009 - this reflects the

additional risk aversion and regulation of banks following the 2008 financial crisis.

CHAPTER – 2 RESEARCH METHODOLOGY

Research Methodology includes two sources of data:

SECONDARY DATA:

Internet-Websites.

Newspaper.

Reference Books.

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CHAPTER – 3 UNDERSTANDING OF CONCEPT

3.1 CAPITAL MARKET INSTRUMENTS

A capital market is a market for securities (debt or equity), where business

enterprises and government can raise long-term funds. It is defined as a market in which

money is provided for periods longer than a year, as the raising of short-term funds takes

place on other markets (e.g., the money market). The capital market is characterized by a

large variety of financial instruments: equity and preference shares, fully convertible

debentures (FCDs), non-convertible debentures (NCDs) and partly convertible

debentures (PCDs) currently dominate the capital market, however new instruments are

being introduced such as debentures bundled with warrants, participating preference

shares, zero-coupon bonds, secured premium notes, etc. The capital market, as it is

known, is that segment of the financial market that deals with the effective channeling of

medium to long-term funds from the surplus to the deficit unit. The process of transfer of

funds is done through instruments, which are documents (or certificates), showing

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evidence of investments. The instruments traded (media of exchange) in the capital

market are:

1. SECURED PREMIUM NOTES

SPN is a secured debenture redeemable at premium issued along with a detachable

warrant,

redeemable after a notice period, say four to seven years. The warrants attached to SPN

gives the holder the right to apply and get allotted equity shares; provided the SPN is

fully paid. There is a lock-in period for SPN during which no interest will be paid for an

invested

amount. The SPN holder has an option to sell back the SPN to the company at par value

after the lock in period. If the holder exercises this option, no interest/ premium will be

paid on redemption. In case the SPN holder holds it further, the holder will be repaid the

principal amount along with the additional amount of interest/ premium on redemption

in installments as decided by the company. The conversion of detachable warrants into

equity shares will have to be done within the time limit notified by the company.

Ex-TISCO issued warrants for the first time in India in the year 1992 to raise 1212 crore.

2. DEEP DISCOUNT BONDS

A bond that sells at a significant discount from par value and has no coupon rate or lower

coupon rate than the prevailing rates of fixed-income securities with a similar risk profile.

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They are designed to meet the long term funds requirements of the issuer and investors

who are not looking for immediate return and can be sold with a long maturity of 25-30

years at a deep discount on the face value of debentures.

Ex-IDBI deep discount bonds for Rs 1 lac repayable after 25 years were sold at a

discount

price of Rs. 2,700.

3. EQUITY SHARES WITH DETACHABLE WARRANTS

A warrant is a security issued by company entitling the holder to buy a given number of

shares of stock at a stipulated price during a specified period. These warrants are

separately

registered with the stock exchanges and traded separately. Warrants are frequently

attached to bonds or preferred stock as a sweetener, allowing the issuer to pay lower

interest rates or dividends.

Ex-Essar Gujarat, Ranbaxy, Reliance issue this type of instrument.

4. FULLY CONVERTIBLE DEBENTURES WITH INTEREST

This is a debt instrument that is fully converted over a specified period into equity shares.

The conversion can be in one or several phases. When the instrument is a pure debt

instrument, interest is paid to the investor. After conversion, interest payments cease on

the portion that is converted. If project finance is raised through an FCD issue, the

investor can earn interest even when the project is under implementation. Once the

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project is operational, the investor can participate in the profits through share price

appreciation and dividend payments.

5. EQUIPREF

They are fully convertible cumulative preference shares. This instrument is divided into 2

parts namely Part A & Part B. Part A is convertible into equity shares automatically

/compulsorily on date of allotment without any application by the allottee. Part B is

redeemed at par or converted into equity after a lock in period at the option of the

investor, at a price 30% lower than the average market price.

6. SWEAT EQUITY SHARES

The phrase `sweat equity' refers to equity shares given to the company's employees on

favorable terms, in recognition of their work. Sweat equity usually takes the form of

giving

options to employees to buy shares of the company, so they become part owners and

participate in the profits, apart from earning salary. This gives a boost to the sentiments

of

employees and motivates them to work harder towards the goals of the company.

7. TRACKING STOCKS

A tracking stock is a security issued by a parent company to track the results of one of its

subsidiaries or lines of business; without having claim on the assets of the division or the

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parent company. It is also known as "designer stock". When a parent company issues a

tracking stock, all revenues and expenses of the applicable division are separated from

the parent company's financial statements and bound to the tracking stock. Oftentimes,

this is done to separate a subsidiary's high-growth division from a larger parent company

that is presenting losses. The parent company and its shareholders, however, still control

the operations of the subsidiary.

Ex- QQQQ, which is an exchange-traded fund that mirrors the returns of the Nasdaq 100

Index.

8. DISASTER BONDS

Also known as Catastrophe or CAT Bonds, Disaster Bond is a high-yield debt instrument

that is usually insurance linked and meant to raise money in case of a catastrophe. It has

a special condition that states that if the issuer (insurance or Reinsurance Company)

suffers a loss from a particular pre-defined catastrophe, then the issuer's obligation to pay

interest and/or repay the principal is either deferred or completely forgiven.

Ex- Mexico sold $290 million in catastrophe bonds, becoming the first country to use a

World Bank program that passes the cost of natural disasters to investors. Goldman

Sachs Group

Inc. and Swiss Reinsurance Co. managed the bond sale, which will pay investors unless

an

earthquake or hurricane triggers a transfer of the funds to the Mexican government.

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9. DEBT INSTRUMENTS

A debt instrument is used by either companies or governments to generate funds for

capital-intensive projects. It can obtained either through the primary or secondary market.

The relationship in this form of instrument ownership is that of a borrower – creditor and

thus, does not necessarily imply ownership in the business of the borrower. The contract

is for a specific duration and interest is paid at specified periods as stated in the trust

deed* (contract agreement). The principal sum invested, is therefore repaid at the

expiration of the contract period with interest either paid quarterly, semi-annually or

annually. The interest stated in the trust deed may be either fixed or flexible. The tenure

of this category ranges from 3 to 25 years. Investment in this instrument is, most times,

risk-free and therefore yields lower returns when compared to other instruments traded in

the capital market. Investors in this category get top priority in the event of liquidation of

a company. When the instrument is issued by:

• The Federal Government, it is called a Sovereign Bond;

• A state government it is called a State Bond;

• A local government, it is called a Municipal Bond; and

• A corporate body (Company), it is called a Debenture, Industrial Loan or Corporate

Bond

10. Equities (also called Common Stock)

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This instrument is issued by companies only and can also be obtained either in the

primary market or the secondary market. Investment in this form of business translates to

ownership of the business as the contract stands in perpetuity unless sold to another

investor in the secondary market. The investor therefore possesses certain rights and

privileges (such as to vote and hold position) in the company. Whereas the investor in

debts may be entitled to interest which must be paid, the equity holder receives dividends

which may or may not be declared.

The risk factor in this instrument is high and thus yields a higher return (when

successful). Holders of this instrument however rank bottom on the scale of preference in

the event of liquidation of a company as they are considered owners of the company.

11. Preference Shares

This instrument is issued by corporate bodies and the investors rank second (after bond

holders) on the scale of preference when a company goes under. The instrument

possesses the characteristics of equity in the sense that when the authorised share capital

and paid up capital are being calculated, they are added to equity capital to arrive at the

total. Preference shares can also be treated as a debt instrument as they do not confer

voting rights on its holders and have a dividend payment that is structured like interest

(coupon) paid for bonds issues.

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Preference shares may be:

• Irredeemable, convertible: in this case, upon maturity of the instrument, the principal

sum being returned to the investor is converted to equities even though dividends

(interest) had earlier been paid.

• Irredeemable, non-convertible: here, the holder can only sell his holding in the

secondary market as the contract will always be rolled over upon maturity. The

instrument will also not be converted to equities.

• Redeemable: here the principal sum is repaid at the end of a specified period. In this

case it is treated strictly as a debt instrument.

Interest may be cumulative, flexible or fixed depending on the agreement in the

Trust Deed.

12. Derivatives

These are instruments that derive from other securities, which are referred to as

underlying assets (as the derivative is derived from them). The price, riskiness and

function of the derivative depend on the underlying assets since whatever affects the

underlying asset must affect the derivative. The derivative might be an asset, index or

even situation. Derivatives are mostly common in developed economies.

Some examples of derivatives are:

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• Mortgage-Backed Securities (MBS)

• Asset-Backed Securities (ABS)

• Futures

• Options

• Swaps

• Rights

• Exchange Traded Funds or commodities

Of all the above stated derivatives, the common one in Nigeria is Rights where by

the holder of an existing security gets the opportunity to acquire additional quantity to his

holding in an allocated ratio.

3.2 ROLE AND IMPORTANCE OF CAPITAL MARKET IN

INDIA

Capital market has a crucial significance to capital formation. For a speedy

economic development adequate capital formation is necessary. The significance of

capital market in economic development is explained below :-

1.Mobilization Of Savings And Acceleration Of Capital Formation :-

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In developing countries like India the importance of capital market is self evident.

In this market, various types of securities helps to mobilize savings from various sectors

of population. The twin features of reasonable return and liquidity in stock exchange are

definite incentives to the people to invest in securities. This accelerates the capital

formation in the country.

2. Raising Long - Term Capital :-

The existence of a stock exchange enables companies to raise permanent capital.

The investors cannot commit their funds for a permanent period but companies require

funds permanently. The stock exchange resolves this dash of interests by offering an

opportunity to investors to buy or sell their securities, while permanent capital with the

company remains unaffected.

3. Promotion Of Industrial Growth :-

The stock exchange is a central market through which resources are transferred to

the industrial sector of the economy. The existence of such an institution encourages

people to invest in productive channels. Thus it stimulates industrial growth and

economic development of the country by mobilising funds for investment in the corporate

securities.

4. Ready And Continuous Market :-

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The stock exchange provides a central convenient place where buyers and sellers

can easily purchase and sell securities. Easy marketability makes investment in securities

more liquid as compared to other assets.

5.Technical Assistance :-

An important shortage faced by entrepreneurs in developing countries is technical

assistance. By offering advisory services relating to preparation of feasibility reports,

identifying growth potential and training entrepreneurs in project management, the

financial intermediaries in capital market play an important role.

6.Reliable Guide To Performance :-

The capital market serves as a reliable guide to the performance and financial

position of corporates, and thereby promotes efficiency.

7. Proper Channelisation Of Funds :-

The prevailing market price of a security and relative yield are the guiding factors

for the people to channelise their funds in a particular company. This ensures effective

utilisation of funds in the public interest.

8. Provision Of Variety Of Services :-

The financial institutions functioning in the capital market provide a variety of

services such as grant of long term and medium term loans to entrepreneurs, provision of

underwriting facilities, assistance in promotion of companies, participation in equity

capital, giving expert advice etc.

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9. Development Of Backward Areas :-

Capital Markets provide funds for projects in backward areas. This facilitates

economic development of backward areas. Long term funds are also provided for

development projects in backward and rural areas.

10. Foreign Capital :-

Capital markets makes possible to generate foreign capital. Indian firms are able to

generate capital funds from overseas markets by way of bonds and other securities.

Government has liberalized Foreign Direct Investment (FDI) in the country. This not

only brings in foreign capital but also foreign technology which is important for

economic development of the country.

11. Easy Liquidity :-

With the help of secondary market investors can sell off their holdings and convert

them into liquid cash. Commercial banks also allow investors to withdraw their deposits,

as and when they are in need of funds.

12. Revival Of Sick Units :-

The Commercial and Financial Institutions provide timely financial assistance to

viable sick units to overcome their industrial sickness. To help the weak units to

overcome their financial industrial sickness banks and FIs may write off a part of their

loan.

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3.3 FACTORS CONTRIBUTING/RESPONSIBLE FOR THE

GROWTH AND DEVELOPMENT OF CAPITAL MARKET IN INDIA

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The factors contributing/responsible to the growth and development of capital market in

India are as follows:

1. Growth Of Development Banks And Financial Institutions :-

For providing long term funds to industry, the government set up Industrial

Finance Corporation in India (IFCI) in 1948. This was followed by a number of other

development banks and institutions like the Industrial Credit and Investment Corporation

of India (ICICI) in 1955, Industrial Development Bank of India (IDBI) in 1964, Industrial

Reconstruction Corporation of India (IRCI) in 1971, Foreign Investment Promotion

Board in 1991, Over the Counter Exchange of India (OTCEI) in 1992 etc. In 1969, 14

major commercial banks were nationalised. Another 6 banks were nationalised in 1980.

These financial institutions and banks have contributed in widening and strengthening of

capital market in India.

2. Setting Up Of SEBI :-

The Securities Exchange Board of India (SEBI) was set up in 1988 and was given

statutory recognition in 1992.

3. Credit Rating Agencies :-

Credit rating agencies provide guidance to investors / creditors for determining the credit

risk. The Credit Rating Information Services of India Limited (CRISIL) was set up in

1988 and Investment Information and Credit Rating Agency of India Ltd. (ICRA) was set

up in 1991. These agencies are likely to help the development of capital market in future.

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4. Growth Of Mutual Funds :-

The mutual funds collects funds from public and other investors and channelise

them into corporate investment in the primary and secondary markets. The first mutual

fund to be set up in India was Unit Trust of India in 1964. In 2007-08 resources mobilised

by mutual funds were Rs. 1,53,802 crores.

5. Increasing Awareness :-

During the last few years there have been increasing awareness of investment

opportunities among the public. Business newspapers and financial journals (The

Economic Times, The Financial Express, Business India, Money etc.) have made the

people aware of new long-term investment opportunities in the security market.

6. Growing Public Confidence

A large number of big corporations have shown impressive growth. This has

helped in building up the confidence of the public. The small investors who were not

interested to buy securities from the market are now showing preference in favour of

shares and debentures. As a result, public issues of most of the good companies are now

over-subscribed many times.

7. Legislative Measures :-

The government passed the companies Act in 1956. The Act gave powers to

government to control and direct the development of the corporate enterprises in the

country. The capital Issues (control) Act was passed in 1947 to regulate investment in

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different enterprises, prevent diversion of funds to non-essential activities and to protect

the interest of investors. The Act was replaced in 1992.

8. Growth Of Underwriting Business :-

The growing underwriting business has contributed significantly to the

development of capital market.

9. Development Of Venture Capital Funds :-

Venture capital represents financial investment in highly risky projects with a hope

of earning high returns After 1991, economic liberalisation has made possible to provide

medium and long term funds to those firms, which find it difficult to raise funds from

primary markets and by way of loans from FIs and banks.

10. Growth Of Multinationals (MNCs) :-

The MNCs require medium and long term funds for setting up new projects or for

expansion and modernisation. For this purpose, MNCs raise funds through loans from

banks and FIs. Due to the presence of MNCs, the capital market get a boost.

11. Growth Of Entrepreneurs :-

Since 1980s, there has been a remarkable growth in the number of entrepreneurs.

This created more demand for short term and long term funds. FIs, banks and stock

markets enable the entrepreneurs to raise the required funds. This has led to the growth of

capital market in India.

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12. Growth Of Merchant Banking :-

The credit for initiating merchant banking services in India goes to Grindlays

Bank in 1967,followed by Citibank in 1970. Apart from capital issue management,

merchant banking divisions provide a number of other services including provision of

consultancy services relating to promotion of projects, corporate restructuring etc.

3.4 RECENT REFORMS INTRODUCED IN INDIAN CAPITAL

MARKET SINCE 1991

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The government has taken several measures to develop capital market in post-

reform period, with which the capital market reached new heights. Some of the important

measures are

1.Securities And Exchange Board Of India (SEBI) :-

SEBI became operational since 1992. It was set with necessary powers to regulate

the activities connected with marketing of securities and investments in the stock

exchanges, merchant banking, portfolio management, stock brokers and others in India.

The objective of SEBI is to protect the interest of investors in primary and secondary

stock markets in the country.

2. National Stock Exchange (NSE) :-

The setting up to NSE is a landmark in Indian capital markets. At present, NSE is

the largest stock market in the country. Trading on NSE can be done throughout the

country through the network of satellite terminals. NSE has introduced inter-regional

clearing facilities.

3. Dematerialization Of Shares :-

Demat of shares has been introduced in all the shares traded on the secondary

stock markets as well as those issued to the public in the primary markets. Even bonds

and debentures are allowed in demat form. The advantage of demat trade is that it

involves Paperless trading.

4.Screen Based Trading :-

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The Indian stock exchanges were modernised in 90s, with Computerised Screen

Based Trading System (SBTS), It cuts down time, cost, risk of error and fraud and there

by leads to improved operational efficiency. The trading system also provides complete

online market information through various inquiry facilities.

5.Investor Protection :-

The Central Government notified the establishment of Investor Education and

Protection Fund (IEPF) with effect from 1st Oct. 2001: The IEPF shall be credited with

amounts in unpaid dividend accounts of companies, application moneys received by

companies for allotment of any securities and due for refund, matured deposits and

debentures with companies and interest accrued there on, if they have remained

unclaimed and unpaid for a period of seven years from the due date of payment. The

IEPF will be utilised for promotion of awareness amongst investors and protection of

their interests.

6. Rolling Settlement :-

Rolling settlement is an important measure to enhance the efficiency and integrity

of the securities market. Under rolling settlement all trades executed on a trading day (T)

are settled after certain days (N). This is called T + N rolling settlement. Since April 1,

2002 trades are settled' under T + 3 rolling settlement. In April 2003, the trading cycle

has been reduced to T + 2 days. The shortening of trading cycle has reduced undue

speculation on stock markets. ?

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7. The Clearing Corporation Of India Limited (CCIL) :-

The CCIL was registered in 2001, under the Companies Act, 1956 with the State

Bank of India as the Chief Promoter. The CCIL clears all transactions in government

securities and repos and also Rupee / US $ forex spot and forward deals All trades in

government securities below Rs. 20 crores would be mandatorily settled through CCIL,

white those above Rs. 20 crores would have the option for settlement through the RBI or

CCIL.

8. The National Securities Clearing Corporation Limited (NSCL) :-

The NSCL was set up in 1996. It has started guaranteeing all trades in NSE since

July 1996. The NSCL is responsible for post-trade activities of NSE. It has put in place a

comprehensive risk management system, which is constantly monitored and upgraded to

pre-expect market failures.

9. Trading In Central Government Securities :-

In order to encourage wider participation of all classes of investors, Including

retail investors, across the country, trading in government securities has been introduced

from January 2003. Trading in government securities can be carried out through a nation

wide, anonymous, order-driver, screen-based trading system of stock exchanges in the

same way in which trading takes place in equities.

10. Credit Rating Agencies :-

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Various credit rating agencies such as Credit Rating Information services of India

Ltd. (CRISIL – 1988), Investment Information and credit Rating Agency of India Ltd.

(ICRA – 1991), etc. were set up to meet the emerging needs of capital market. They also

help merchant bankers, brokers, regulatory authorities, etc. in discharging their functions

related to debt issues.

11. Accessing Global Funds Market :-

Indian companies are allowed to access global finance market and benefit from the

lower cost of funds. They have been permitted to raise resources through issue of

American Depository Receipts (ADRs), Global Depository Receipts (GDRs), Foreign

Currency Convertible Bonds (FCCBs) and External Commercial Borrowings (ECBs).

Further Indian financial system is opened up for investments of foreign funds through

Non-Resident Indians (NRIs), Foreign Institutional investors (FIls), and Overseas

Corporate Bodies (OCBs).

12. Mutual Funds :-

Mutual Funds are an important avenue through which households participate in

the securities market. As an investment intermediary, mutual funds offer a variety of

services / advantages to small investors. SEBI has the authority to lay down guidelines

and supervise and regulate the working of mutual funds.

13. Internet Trading :-

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Trading on stock exchanges is allowed through internet, investors can place orders

with registered stock brokers through internet. This enables the stock brokers to execute

the orders at a greater pace.

14. Buy Back Of Shares :-

Since 1999, companies are allowed to buy back of shares. Through buy back,

promoters reduce the floating equity stock in market. Buy back of shares help companies

to overcome the problem of hostile takeover by rival firms and others.

15. Derivatives Trading :-

Derivatives trading in equities started in June 2000. At present, there are four

equity derivative products in India Stock Futures, Stock Options, Index Futures, Index

Options.

Derivative trading is permitted on two stock exchanges in India i.e. NSE and BSE.

At present in India, derivatives market turnover is more than cash market.

16. PAN Made Mandatory :-

In order to strengthen the “Know your client" norms and to have sound audit trail

of transactions in securities market, PAN has been made mandatory with effect from

January 1, 2007.

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3.5 LOOPHOLES IN INDIAN STOCK MARKET

Almost every successful stock trader has learned ethical ways of how to hack the

stock market. Not hack the stock market in illegal terms, but finding ethical ways to take

advantage of certain stock loopholes. Taking advantage of market loopholes is one of the

most common traits among the high achievers in trading stock. However, if you don't do

it properly you may find yourself frustrated with your lack of results.

1. They don't properly prime themselves on the trading market.

There is a wide range of stock traders, ranging from novice to intermediate, to advance.

Learning how to hack the stock market, novices must learn the real truth of the market

rather than academic fluff. The real truth as in other forces that influence the price of a

stock. While advanced traders may need to rethink what they think they know.

2. They don't look for loopholes.

Think of loopholes as a flaw in the system that is not caused by natural market forces that

very occasionally pushed the price of a specific stock lower or higher. For example, it

could be a group of traders acting from emotions or certain news that came out in the

media, etc.

3. They don't calculate a fairprice per share.

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It is critical to know how to value any share of stock. Most investors are very bad in

valuing stocks and tend to buy stocks overpriced. To get the most return on investment

when learning how to hack the stock market you must learn to buy stocks at a bargain.

Most importantly, learning the criteria of picking a bargain stock.

4. They don't follow a proven system for plan.

When you know how to hack the stock market, you will not achieve maximum success

until you formulate a system or plan that put it all together. A plan that includes, But not

limited to, when to sale, when to buy, stop loss positions, triggers and most importantly

what to buy. A trader can run into many mistakes that cause him/her to lose money if

they do not know properly learn about the stock market and take advantage of market

loopholes. If you do not want to find yourself frustrated with your lack of results, learn

from the four common mistakes mentioned above.

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CHAPTER 4 – SUMMARY OF THE STUDY

4.1 CONCLUSION

Stock market is considered as most suitable investment for the common people as

they can invest their money into the diversified managed portfolio at relatively low cost.

It may be concluded that due to number of reforms, the capital market of India has

developed a lot, it has made it possible to compare Indian capital market with the

international capital market. SEBI is doing a lot of work for the development of capital

market. It has brought greater transparency in the affairs of organizations and stock

exchanges, though not to the optimum mark. Still the investor doesn't have hundred

percent confidence in capital market. It seems that SEBI worked slowly in transforming

Indian stock market into a globally competitive and contemporary market.

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4.2 RECOMMENDATIONS

1.Investors possess limited knowledge and information on products, their benefits and

risk attached, which acts as a deterrent to investment.

2.There is a need for increased penetration of Capital Markets to reach out to investors

which are untapped as of today. The lack of penetration is characterized by the fact that

around 85% of the trading volume on NSE and BSE comes from top 10 cities. So,

Financial Literacy and easy availability and accessibility of information is needed.

3.The advantages of equity investments, knowledge about investor friendly products

need to be disseminated with a greater focus.

4.To fetch the investment, procedure and processes for investments in financial products

are required to be made simpler.

5.Government need to focus on small investors with introduction of new, innovative and

alternative financial products.

6.Investor Awareness Programmes should be organized for specific demographics of

population to cover the length and breadth of the country. Basically, to cover the remote

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areas, Investor Awareness Programmes and media campaigns should be rigorously

organized.

7.Technology can help in a big way in creating investor awareness and rebuilding

investor confidence.

4.3 ARTICLE

SEPTEMBER 13, 2014

Impact of Foreign Institutional Investors on the Indian Capital Market

Foreign institutional investment signifies investments made by individual investors or

companies in foreign lands. India have been witnessing a surge in FII activity since the

opening of its capital markets. Owing to its high growth potential, India has become a

favorite destination for FII activity. FIIs, convinced of India’s economic progress ad

strong corporate earnings, are continuously investing in the country. Fast GDP growth

has made India a preferred destination for foreign investors post the 2008 financial crisis.

In 2010 itself, India attracted nearly US$ 30 billion of net foreign inflows, which was just

under 50 per cent of all inflows into emerging Asian markets, excluding China. Foreign

investors have invested Rs 6,460 crore (US$1.45 billion) in Indian stock markets in just

five trading sessions of July 2011.In the first six months of 2011, overseas investors

infused around Rs 17,000 crore (US$3.82 billion) into the Indian market, including

stocks and bonds. In the same period, FIIs made investments of Rs 9,948 crore (US$2.23

billion) in the debt market, with investments in stocks being Rs 2,670 crore (US$ 599.79

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million).This paper analyses the role ahead for the Foreign Institutional investors in the

present Indian economic Scenario with the focus on the impact on the Indian Capital

Market.

CHAPTER 5 – APPENDICES

5.1 REFERENCES

REFERENCE BOOKS

Goyal, Ashima (2005), Regulation and Deregulation of the Stock Market in India,

Available at SSRN

Mukherjee, P, Bose, S and Coondoo, D (2002), “Foreign Institutional Investment

in the Indian Equity Market”, Money and Finance, 3, pp. 21-51

NEWSPAPERS, JOURNALS AND MAGAZINES

Article from Economic Times.

WEBSITES

https://www.icsi.edu/WebModules/LinksOfWeeks/CAPITAL%20MARKETS

%20WEEK%20SUGGESTIONS.pdf

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http://www.psgim.ac.in/journals/index.php/jcrm/article/view/222

http://study-material4u.blogspot.in/2012/07/chapter-6-capital-market-in-india.html

http://kalyan-city.blogspot.com/2010/09/organizational-structure-of-indian.html

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