Indian Securities Market : What it was, What it is now

Opportunities

Challenges

Indian Securities Market

Pre 1992

Post 1992

Restrictions on foreign investment License raj, Poor governance Open outcry trading system Longer settlement period Unregulated Merchant Bankers, intermediaries Investor protection was much on paper than in reality

 Reforms : liberalization , globalization, privatization Opening up the financial sector for foreign investment SEBI was formed Regional exchanges lost their relevance entire market share divided between NSE and BSE Electronic era

WHY 1992?
HINT?

 Primary Market - new issues mkt (IPO, FPO)

Secondary Market (stocks, bonds)

Derivatives Market (F&O in : indices and equity shares )

Benjamin Graham

Securities

Shares, Bonds, Debentures, F&O, Mutual Funds Brokers, Sub Brokers, Custodians, Transfer agents, M.B., Stock Exchanges Companies, Government, Financial Institutions, Mutual Funds, Banks

Intermediaries

Components of Securities Market

Issuers

Investors

Individuals, Companies, M.F.s, Fls, FIIs

Market Regulators

SEBI, DEA, DCA, RBI, Stock Exchanges

In the recent past, the Indian securities market has seen multi-faceted growth in terms of : Technology enabling faster movements of funds (EFT facility) Dematerialization of shares, reduced settlement cycles

Clearing houses set up by each of the stock exchanges (NSCCL of NSE) have reduced the counter-party risk
Risk management mechanisms (Capital adequacy requirements, trading and exposure limits, daily margins, M2M) Indian companies can now raise funds freely from the international capital markets, via ADR, GDR, FCCB

 Futures and Options on benchmark indices as well as stocks Futures on interest rate products such as Notional 91-Day T-Bills, 10-Year Notional Zero Coupon Bond, and 6% Notional 10-Year Bond Number of stock exchanges and other intermediaries Number of listed stocks Amount raised from the market and the Market capitalization Trading volumes and turnover on stock exchanges Investor population and Participants

Stocks shortest route to the largest wealth creation for the long term. current situation offers a lifetime opportunity to make long-term wealth WHY?

 By the end of this decade, Sensex is expected to grow from the current level of 18,000 to a six-digit figure Corporate earnings have grown at around three times the GDP growth Companies can clock 25- 27% annual growth Indias domestic demand will continue to rise

FIIs turning to India, due to its sustained high growth

 Single biggest vehicle of transporting retail investors savings into stocks and debt instruments Funds represent all the goodness of stock market, but at lesser risk

A good equity fund rises faster than the market and falls slower
Online analytical tools available now

Generating 15-17% annual returns is much easier, BUT only in the long-term

 For growth, investors must choose a mix of largecap, mid- cap, small-cap and value-style (sectoal) funds. Even if funds were to grow at the rate of the past five years, you will make a lot of wealth :

John Keynes

 Till now, fixed income debt instruments act as a safety net, with products such as FDs & PPF But slowly; Debt funds, Corporate bonds and Blended products will dominate

 Corporate bonds - a good mix of attractive returns and relative safety , issued by rapidly expanding companies in need of money In the next few years, retail investors may be allowed to trade bonds. This will add the liquidity quotient to your debt cushion Blended products - An imp. component of PMS, these products blend equity, debt and gold to conserve capital and provide exposure to bull runs simultaneously

 Developments in IPO Market the IPO mkt is largely paper based even today. Technical automation will be a big enabler, with speedy processings. Also, widespread use of ASBA Penetrating use of new products like Interest rate futures, Currency Futures, etc. Allowing institutional investors to participate in Commodity markets

 Investor education Reforms - The second wave of divestments and reforms in Banking, Insurance etc. are likely to throw up many opportunities

Infrastructure - Bharat Nirman is set to fire on all cylinders and projects moving at a snail's pace are expected to get a boost.

1. India's GDP
Stock markets eventually depend on the health of the economy, which is best captured in three letters: GDP So any slowdown in the economy will impact the markets and moderate gains.

2. Inflation
a double-edged sword it is projected to remain high for most of 2011 food inflation will affect Indias consumption higher inflation, higher the interest rates, which means higher costs for corporates

3. Crude prices
Brent Crude has already hit $120 a barrel

Retail prices of petrol will rise even further, since government isnt subsidising it any more More fundamentally, higher crude price will hurt the 2011-12 GDP growth, and in turn market sentiments

4. Scams & Frauds CWG, Adarsh, 2G, it goes on

Scams affect the market negatively, and destroy investor sentiments, national image Evidenced by the Harshad Mehta Scam in 1990s and the Ketan Parekh Scam in 2000s

2008 Jan :US Economy Crisis 2010 May: European Debt Crisis (PIGS) 2011 Jan-Feb : Middle East Political Crisis 2011 March 11 : Japan Natural Disasters