secondary markets

7/29/2019 Secondary Markets

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2010 BSE Institute Limited

Secondary markets


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What is Stock Exchange

It is a platform where buyers and sellers meet It provides a place to buy and sell shares

It acts as a bridge between demanders of fund

and suppliers of fund

Canalize savings into investments


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Participants

Govt. Companies

Institutions

Retail Investors Mutual Funds


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History of Stock Exchanges

BSE first stock exchange started on 9th July1875

Known as Native Shares and Stock Broking

Association

Membership fees was Rs. 1

There were 318 members


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History of Stock Market

First stock market started in 9th July 1875. Native Share and Stock Brokers Association

Now known as BSE

At that time membership fees Rs. 1 There were some 318 members


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Major reforms in capital Market

1991 LPG 1992 FII were allowed in india

1993 Private Sector Mutual Funds werelaunched

1996 First time SEBI came out with Guidelinesfor MF industry


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Reforms cont

1996 Depository act passed 2000 Derivatives markets gets going

2003 Commodities Market started

2008 Currency futures market launched


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Current scenario

Today 23 stock exchanges in India Major ones BSE (Bombay Stock Exchange )

and NSE (National Stock Exchange)

NSE formed in 1994


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Daily Turnover of stock markets

BSE Cash segment Rs. 4000 crores NSE cash segment Rs. 15000 crores

NSE FO Rs. 1,00,000 crores


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Financial Markets Classification

Capital Market is market for long term sourceof funds

Market having maturity of more than one year

Instruments like

Shares Preference shares

Debentures

Bonds


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Capital market and Economic Growth

US,UK,Japan have high economic growth dueto developed Capital markets

Fund raising very easy activity


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Money Markets

It is a market for short term source of funds The maturity of these instruments is less than

one year

Instruments like

T- Bills Commercial Paper

Inter-corporate Deposit

Certificate of Deposit


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Call Money Market

Liquidity management main object 2007 Call money rate 0.25 %

2008 call money rate 21 %

Currently call money rates 7.25 % to 7.5 %


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Secondary Market

It is known as the Stock Market Companies trade on the stock market

On BSE 6500 companies are listed

On NSE 2500 companies are listed


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Regulation of Stock Market

It is regulated by SEBI (Securities andExchange Board of India)

All the stock exchanges of the country areregulated by SEBI

All the matters related to scams in the stockmarket are looked after by this agency


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Relationship between Primary

and Secondary market

Both are inter related If there is bull run in secondary market more

IPO will come in Primary Market

If there is bear run in the secondary marketthen less IPO will come in Primary market


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Years of IPO

2007 saw maximum IPO as the market was inbull mode

2008 there were no IPO after Reliance Powerfailure

2009 again saw many IPO as stock marketrecovered


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Classification of stocks

Large Cap stocks which have market capgreater than Rs. 9000 crore

Mid cap stocks which have market capbetween Rs. 2500 to 9000 crore

Small Cap stocks which have market capbetween Rs. 250 cr to 2500 Crores

Micro cap less than Rs. 250 crores


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Another classification

A Blue Chip stocks which are fundamentallyvery sound

B1 B2 which are sound but they are small insize. Normally known as Mid cap

T group refers to Trade to Trade and mostrisky as only delivery base trade allowed. Thisstocks have abnormal volatility


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Another classification

S group stocks are small companies which arelisted on Indonext exchange but trade on BSE

Z group stocks are those which are very riskyas they may get delisted or suspended

anytime by SEBI.


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Settlement Process

The payin and payout of funds and securitiestakes place on T + 2 basis

T is Monday so plus two working days meanson Wednesday the payin of funds and

securities will take place in the morning

Also on Wednesday the payout of funds andsecurities will take place in afternoon


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Economic Indicators affecting

markets

GDP Inflation

Interest Rates

Exchange Rates Fiscal Deficit

IIP data

Purchasers Manager Index

Balance of Payment


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GDP

It is Gross Domestic Product It measures countrys Economic Progress

Sole vital indicator for the economic scenarioof the country

Indian GDP has been at 8.5 % average for last5 years

For this fiscal year it is projected at 7.8 %


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GDP

World Economy likely to grow only at 3.2 % From 1999 to 2008 World Economy grew at

2.9 %

US alone contributes 24 % of world GDP

India contributes 1.6 % of world GDP


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Inflation the Evil

Inflation is monetary phenomenon in whichthere is continuous price rise

Inflation reduces the purchasing power ofrupee

Higher inflation would mean that more moneyis required to buy same quantity of goods


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Causes of Inflation

There are 2 main causes of Inflation 1. Excessive Money supply

2. Demand supply mismatch

Indian Economy has actual problem ofdemand supply on agriculture side

Black marketing and hoarding results in rise of

food grain prices


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Inflation and Interest Rates

Inflation is monetary phenomenon Inflation has direct impact on the economy

Higher Inflation leads to higher interest rates

Higher interest rates leads to higher cost ofcapital

Loans becomes costly


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Inflation and Interest Rates

Corporate expansion stops Consumption comes down as people avoid

taking housing, car loans

Reduces the sales of companies

Profitability of companies come down

GDP slows down ultimately

Stock market goes down


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Interest Rates Globally

USA 0.25 % Bank of England 1 %

European Central Bank 1 %

China 3.3 % Australia 1 %

India 8 to 9 %


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Exchange Rate

It is unbiased indicator of the Economy Rupee Appreciation means that Economy has

become strong and foreign flows coming in

Rupee Depreciation means that Economy isgetting weak and that foreign Flows are goingout


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Appreciation of Rupee

1 $ = Rs. 45 1 $ = Rs. 40

This is appreciation of rupee

IT is harmful for export oriented sector likeGems, Jeweller, IT, Textiles, Auto

Good for Oil as we import 73 % of total oilrequirement


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Depreciation of Rupee

1 $ = Rs. 45 1 $ = Rs. 50

This is Depreciation of Rupee

It is good for all export oriented sector like IT,Textile, Gem and Jewellery, Auto

It hurts oil pool as we import 73 % of total oilrequirement


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Methods of Exchange Rate

Demand Supply Method ( US, UK, India,Japan)

Fix Rate method (China)

Snake in Tunnel (European Union)

Dirty Float ( Central Bank Intervention)

Hybrid Method (Central Bank & Market relatedmethod)


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Fiscal Deficit

Fiscal deficit is the gap between GovernmentIncome and Government Expenditure

High fiscal deficit countries are avoided by FIIand FDI

Indian Fiscal Deficit lowered from 5.4 % to5.1%

Target for 2012 is 4.6 %


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Fiscal Deficit

P.I.I.G.S (Portugal, Italy, Ireland, Spain,Greece) are having fiscal deficit of around11% to 14 %

Austery measures have been adopted by

Greece This includes reduction in salaries, cut in

government spending


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IIP Data

IIP stands for Index for Industrial Production It shows the demand in the manufacturing

sector

High the data the better it is

Lower data means that demand is slowingdown


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Purchasers Manger Index

PMI is also indicator of the industrial activity inthe country

It has a base reading of 50

Reading above 50 indicates that economy isexpanding

Reading below 50 indicates that economy isweakening

India current reading is 57


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Balance of Payments

Balance of Payment is the statement oftransaction of one country with the rest of theworld

It has two main accounts

Current Account

Capital Account


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Current Account

It is account which deals with imports andexports of goods and services

This includes both visible and invisible goods

Imports more than exports then currentaccount deficit

Exports more than imports then currentaccount surplus


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Capital Account

Capital account deals with all inflows andoutflows of capital

It includes Loans, FII money, FDI money,Grant, Aid etc

India allows only Partial capital accountconvertibility


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Types of Capital Flows

Two main types of flow FII (Foreign Institutional Investors) FDI (Foreign Direct Investment)

FII flows comes to stock market

FII responsible for new highs and new lows

In 2007, FII invested Rs. 70,000 crores-21206

In 2008, FII sold Rs. 52,000 crores-7697

In 2009, FII invested Rs. 82,000 crores-18000

In 2010, Fii Invested Rs. 1,30,000 crores-22000


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FII data

Currently 1746 FII registered with SEBI

70 % FII are from USA

So we cannot ignore USA

IN 2010 FII have invested record money since1992.


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FII inflows

In 2009 and 2010 together FII have investedRs.2.15 lakh crore

This is 50 % of the total investment made from1992 to 2010.

Total FII inflow since 1992 Rs.443626 Crores

29% of FII inflow in 2010 since 1992


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FII registered and Sensex Return

2003 517 63.78 % 2004 637 9.56%

2005 823 40.70%

2006 993 46.82% 2007 1219 45.50%

2008 1594 -52.86%

2009 1706 75.38%

2010 1747 14.65%


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Thank You

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