Financial Market

• Primary • Securitization Market

• Secondary Market • Factor Market
• Equity • Working Capital Finance
• Debt Market • Project Finance
• G-Sec • Retail Loans
• Capital Market • Pension funds
• Money Market • Financial Derivatives
• Forex Market • Infrastructure
Development Funds
 Types of Financial Market…..
Capital Market:-
oEquity
oPreference
oDebentures
oBond etc.
 Money Market:-
o Treasury Bills.
o Certificates of Deposits (CDs).
o Commercial Paper.
 Call Money Market
o LIBOR (London Interbank Offer Rate)
o MIBOR (Mumbai Interbank Offer Rate)
Constituents of Capital Market in India
 Types of Financial Market
• Spot / Cash Market
• Future Market
• Standardized Market-----Exchange
• Customize Market--------OTC
 Financial Institutions
• Intermediaries
• Non- intermediaries (RBI, SEBI)
• Depository
• Non- Depository
• Regulatory
• Pool funds
• Others
 Intermediaries
• Banks
• Non-Banking Financial Intermediaries (NBFI)
e.g. Venture Capital Funds, Hire and Leasing Companies
• Non-Banking Financial Corporation (NBFC)
e.g. Micro-Finance Companies, Bajaj Financial Services,
Sahara India etc.
• Mutual Fund Houses
• Insurance Companies
 Role and Importance of financial market
• Safety of deposit
• Return on deposit
• Return on investment
• Providing resources to fund seeker
• Allocating financial resources to efficient use
• The financial system transfer resources across time,
sectors, and regions.
• The financial system pools and subdivides funds
depending upon the need of the individual saver or
investor.
• Diversified product for investment and fund mobilisation:
Debt, Equity, Long term, Short term.
 Role and Importance of financial
market………….
• Meeting point for all kind of players------
Institution as well as Retail
• Provide service related to Currency, Commodity
etc.
• Provide liquidity by secondary market.
• OTC Market provide liquidity to customize
product
• Provide information to investor----Credit Rating
Agency, Media etc.
 Factors affecting Financial Market
• Policy rate
• GDP growth rate
• Liquidity in the economy
• Liquidity of the market
• Availability of Information
• Budget
• Alternative investment avenue
 Parties of Stock Market
Statutory Players
• Stock Exchange • Mutual Funds
• Stock Brokers • Pension Funds
• Depositories • Insurance Companies
• Regulators • FIIs
• Clearing House • FPIs
• Banks
• Indian Residents
 IPO

• IPO. The first sale of stock by a company to

the public. The most common reason for a
company to initiate an IPO is in order to raise
more capital.
 FPO

• An issuing of shares to investors by a public

company that is already listed on an exchange.
• An FPO is essentially a stock issue of
supplementary shares made by a company
that is already publicly listed and has gone
through the IPO process.
 PRIVATE PLACEMENT
• A company makes the offer of sale to
individuals and institution privately
without the issue of a prospectus.
 RIGHT ISSUE
When an existing company issue shares to
its existing shareholders in proportion to
the number of share held by them, it is
known as Rights Issue.
 BONUS
ISSUE
Bonus shares are the shares allotted by
capitalization of the reserves or surplus of a
company.
 STOCK OPTION
• A company can encourage its employees to take
up shares and subscribe to it is called stock
option or Employee Stock Option Scheme
(ESOPS).
• SEBI has issued guidelines in this respect.
 Employee Stock Option (ESO)

• ESOs carry the right, but not the obligation, to

buy a certain number of shares in the
company at a predetermined price. An
employee stock option is slightly different
from a regular exchange-traded option
because it is not traded on an exchange.
 O FFER FOR SALE
• A company sells the securities through the
intermediaries such as issue houses, and
stock brokers.
 Primary Market

provides the channel for sale of

new securities

to raise resources to meet their

requirements

issue the securities in domestic

market and/or international market.
 Ups and Down of IPO
Ups Downs
• Bring a huge influx of cash to the • A public company's
company and also generate money
for the owners.
finances must be made
• An IPO brings new money that the available for government
company can use to grow its business and public perusal; the
without incurring as much debt, to company must also answer
better compensate investors and
employees, and provide stock options to the SEBI (SEC).
or other kinds of compensation. • Preparation for an IPO is
• Being a publicly-held company can expensive and time-
also make it easier to raise capital in
the future, if need be, and can make a consuming.
company more appealing to vendors • Pricing IPO is a very
and customers.
challenging tasks.
Classification of issue of shares

Fresh Issue
Initial Public
Offering
Offer for Sale
Public
Fresh Issue
Issues Further Public
Rights
Offering
Offer for Sale
Private
Placement
 Terminology

• Nominal or stated amount

Face value assigned by issuer

• When security sold above its

Premium face value

• When security sold at less

Discount than face value
 Initial Public Offering (IPO)

Made by Unlisted
Companies

Either Fresh An offer for sale

issues of of its existing Both for the first
securities securities time to the
public
Advantage of IPO

No Cost of Huge amount

capital can be
raised

Correct
Brand Value
Valuatio
n
Disadvantage of IPO

Disclosure
of
information
Decision’s take
time

Cost of IPO
Parties to IPO

Registrar Underwriter

Lead Merchant
Manager Banker
 Who decides the price of an
issue?
• When issuer & Lead
Merchant Banker fix a
Fixed Price price

• When the company and

Price discovery
Lead Manager
through Book stipulate the price and
Building leave it to
market forces
 Further Public Offering

When an already listed company

makes
Either fresh issue of securities to the
public

Or an offer for sale to the public

Through offer document

 Rights Issue

When listed company issue fresh securities

To existing shareholder

Suites for companies who would like to

raise capital
Private Placement / Preferential
Issue

• Issue of shares or convertible securities by

1. listed companies

• Which is neither right issue nor a public issue

2.

• Faster way for company to raise equity

3. capital
Issue Price

Price at which
company shares are
offered

Initially in primary
market
 Market Capitalization

1. • Market value of a quoted company

2. • MC = Market Price * No. of Shares

 Difference between Public Issue
& Private Placement
• Public Issue Private Placement
• When issue made for • Issue is made to a select
general public and any set of people.
investor at large.
• As per
• An allotment is made to
companies act, 1956,
issue less than 50 persons.
an becomes public
• result it allotmentwhen
to
50 persons or more.
Book Building
Cut –Off Price

Any price which above the floor

price

Decided by Issuer & Lead

Manager

After considering the book &

investors appetite for the stock
 Floor Price

It is the minimum price at which

bids can be made
 Price Band

The prospectus may contain

Either the floor price for the Price Band within which the
securities investor can bid

Cap should not be more than 120% of the floor price

Price decided by The Company consultant with The

Merchant Banker
 Documents in IPO

Draft Offer Abridged

Prospectus
Prospectus
Document
 Draft Offer Document

Offer document in draft stage

Filled with SEBI

At least 2 days prior to the filling of

the offer document with ROC
Abridged Prospectus

Shorter version of the

prospectus

Contains all the salient

features of a prospectus

Applications form of
public issues.
 Lock in

Freeze on the sale of shares for a certain

period of time

Ensure that company should continue to

hold some minimum percentage

After public issue

Listing of Securities

Admission of securities of an issuer to

trading

Dealing on a stock exchange through

a formal agreement

Provide liquidity and marketability to

securities

Provide mechanism for effective control

& supervision of trading
 Listing Agreement

1. • Specifies the terms & conditions

of listing

• Disclosures shall be made by a

2. company on continuous basis to
the exchange
 Delisting of Securities

• Permanent removal of securities of a

listed company

•From the stock exchange

Securities of that company no

• longer be traded on that stock exchange
 Foreign Capital Issuance
• ADR:- An American depositary receipt (ADR) is a
negotiable certificate issued by a U.S. bank
representing a specified number of shares (or one
share) in a foreign stock traded on a U.S. exchange.
• GDR:- A global depositary receipt (GDR) is a bank
certificate issued in more than one country for
shares in a foreign company. The shares are held by
a foreign branch of an international bank. The
shares trade as domestic shares but are offered for
sale globally through the various bank branches.
'Foreign Currency Convertible Bond - FCCB

• A foreign currency convertible bond (FCCB) is a type of

convertible bond issued in a currency different than the
issuer's domestic currency.
• In other words, the money being raised by the issuing
company is in the form of a foreign currency.
• A convertible bond is a mix between a debt and equity
instrument.
• It acts like a bond by making regular coupon and principal
payments, but these bonds also give the bondholder the
option to convert the bond into stock.
'Foreign Currency Convertible Bond - FCCB

• A foreign currency convertible bond (FCCB) is a type of

convertible bond issued in a currency different than the
issuer's domestic currency.
• In other words, the money being raised by the issuing
company is in the form of a foreign currency.
• A convertible bond is a mix between a debt and equity
instrument.
• It acts like a bond by making regular coupon and principal
payments, but these bonds also give the bondholder the
option to convert the bond into stock.