Professional Documents
Culture Documents
Introduction
It is the centre for dealing in long term
funds. It refers to the institutional arrangements for facilitating the borrowing & lending of long term funds. Acc. To H.F. Dougal: the capital market deals in long term funds both DEBT & EQUITY.
Functions
It aids economic growth. Mobilize long term savings. Provide risk capital. Provide liquidity. Improve the efficiency of capital allocation through a competitive pricing mechanism. Disseminate information. Enable wider participation
Types
Primary Market
Secondary Market
Primary issues
Rights issue
placement METHOD
Preferential issue
PUBLIC ISSUES
Section 67 of the companies (amendment)
act, 2000 provides that where the offer or invitation to subscribe for shares and debentures is made to 50 or more persons, then such an offer or invitation shall be deemed to the public offering Public issues are open to the general public the appointment of a Merchant Banker for the purpose
OFFER DOCUMENT
Its in case of Rights Issue. Some of the pertinent information that has to be
disclosed in the offer document relate to earnings per share, pre-issue EPS for the last three years, pre-issue price-earnings ratio, average return on net worth in the last three years, minimum return on increased net worth required to maintain preissue EPS, comparison of all the accounting ratios of the issuer company, Other information include credit rating, risks in relation to the first issue, risk factors- internal and external, details of underwriting agreements, objects of the offering
least 21 days prior to the filing of the offer document with the registrar of companies and the stock exchanges. The draft offer document is available on the SEBI website for public comments for a period of 21 days from the filing of the draft order The merchant banker has to ensure that all the requirements of the DIP (disclosure and investor protection) guidelines are compiled with while submitting the draft offer document to the sebi
RIGHTS ISSUE
Sale of securities to the existing
public Shareholders are offered the right to subscribe to new shares in proportion to number of shares they already hold Offer is made by circular to existing shareholders only
Merits
Chief merit- an INEXPENSIVE
METHOD- usual expenses like underwriting commission, brokerage and other administrative expenses.
applications & allotment is less cumbersome because the number is limited.
Placement method
The securities are sold by the issuing companies to
certain Intermediaries such as brokers, issue houses of FIs so as to privately place shares to their customers & associates. Companies reserve rights for private placements on their own. SEBI has laid down restrictions on the reservations of securities in any public issues. The maximum permissible allotment is restricted to 10% for permanent employees, 10% for shareholders for promoting companies, 20% for Indian mutual funds, 24% for FIIs & 20% for FIs.
ELIGIBILITY NORMS
The SEBI has laid down eligibility norms for
entities raising funds through an IPO and an FPO. Entry norm 1 The company desiring to tap the primary market shall meet the following requirements Net tangible assets of at least Rs. 3 crores for three full years, of which not more than 50% is held in monetary assets Distributable profits in at least three out of the five preceding years
ELIGIBILITY NORMS
Net worth of at least rs. 1 crore in three
years If there is a change in the companys name, at least 50% revenue for preceding one year should be earned from the new activity The issue size should not exceed 5 times the pre-issue net worth. On account of rigidity of the parameters, the SEBI has provided two other alternative routes to a company not meeting any of the above mentioned
Entry norm 2 Issue shall be through a book building issue With at least 50% of the issue to be mandatorily allotted to the Qualified institutional buyers, failing which the money shall be refunded The minimum post-issue face value capital shall be Rs.10 crores or there shall be compulsory market making for at least 2 years Or
Entry norm 3 The project is appraised and participated to the extent of 15% by FI/scheduled commercial banks of which at least 10% comes from the appraisers. The minimum post-issue face value capital shall be Rs. 10 crore or there shall be compulsory market making for at least 2 years.
The SEBI has exempted the following entities from entry norms
Private sector banks Public sector banks An infrastructure company whose project has been
appraised by IDFC or a bank which was earlier a pfi and not less than 5 per cent of the project cost is financed by any of these institutions Rights issue by a listed company
Secondary Market
Secondary/Stock market!!!!
Introduction
These are also known as Stock Market .
They enable shareholders to sell their holdings readily,
thereby ensuring liquidity.
An active and healthy secondary market in existing securities, lead Considerable broadening of investment enquiries render the task
of raising resources by entrepreneurs easier.
Secondary Market
SECURITY
BOND
STOCK 1)COMMON STOCKS 2)PREFERRED STOCKS
SHARE
MUTUAL FUNDS.
PAR VALUE vs. MARKET VALUE
Bombay Stock Exchange Madhya Pradesh Stock Exchange Vadodara Stock Exchange The Ahmedabad Stock Exchange Magadh Stock Exchange Gauhati Stock Exchange Bhubaneswar Stock Exchange Jaipur Stock Exchange Delhi Stock Exchange Assoc Ludhiana Stock Exchange
In India generally we have order driven auction market NSE: order driven BSE : hybrid market , auction system but quote driven.
TRADING ARRANGEMENTS
automated screen based trading. It uses a modern, fully computerized trading system designed to offer investors across the length and breadth of the country a safe and easy way to invest. The NSE trading system called 'National Exchange for Automated Trading' (NEAT) is a fully automated screen based trading system NSE and OTCEI : screen based trading 8,000 terminals spread across the country.
equity market. Movements of the index should represent the returns obtained by "typical" portfolios in the country.
,BSE Midcap , BSE Smallcap
BSE Indices : Sensex , BSE-100 , BSE-200 , BSE-500 NSE Indices : S&P CNX Nifty , CNX Nifty Junior-100
Index -15 listed companies
second rung of growth stocks , CNX MidCap , CNX IT Sector Index , CNX PSE Index -20 PSE stocks , CNX MNC
SENSEX is calculated using the "Free-float Market Capitalization" methodology takes into consideration only those shares issued by the
company that are readily available for trading in the market, wherein, the
level of index at any point of time reflects the free-float market value of 30 component stocks relative to a base
period.
latest trades are executed, are used by the trading system to calculate SENSEX every 15 seconds.
large caps, they are also in the middle of the road in terms of risk and reward.
faster, giving a better return, but are riskier because they have less protection against going out of business due to their small size.
Kajaria Ceramics Ltd. ; Kohinoor Foods Ltd. ; Bata India Ltd. ; Arvind Mills Ltd. ; J.K. Cement Ltd.
Functions Of SEBI
Functions Of RBI
Monetary Authority
Issuer of currency
Regulator and supervisor of the financial system Authority On Foreign Exchange Developmental role Related Functions