Final Presentation financial market

8/7/2019 Final Presentation financial market

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PRESENTED BY

ADITYA PATIL

ANNA NICHOLAS

BIBIN CHACKO EGYANENDRA KUMAR

MADHURIMA PRAKASH

MEGHA T N

NUBIA G CHAKKALAKALRAJ JANA ROY

REVATHY JEEVANROHIT RAMACHANDRAN



OBJECTIVES

� INTRODUCTION

� TYPES OF DEBT MARKETS

� MAJOR PLAYERS AND MARKET SIZE� REGULATIONS

� RBI AND SEBI

� CLASSIFICATION

� DEBT INSTRUMENTS

� ADVANTAGES AND DISADVANTAGES



INTR ODUCTION

� What is a ¶DEBT MARKET·?

�Fixed Return

� Coupon Rate

� Why is ¶BOND MARKET· referred as

¶GOVERNMENT BOND MARKET· ?



Types of debt markets

� Funding

� Government & agency

� Municipal� Mortgage backed, asset backed, and

collateralized debt obligation

� Corporate



Corporate Bond

� A corporate bond is a bond issued by a

corporation. The term is usually applied tolonger-term debt instruments, generally with

a maturity date falling at least a year after

their issue date.



Types of corporate bond

� Secured debt vs unsecured debt

� Senior debt vs subordinate debt



Risk analysis

� Default risk

� Credit spread risk

� Interest rate risk� Liquidity risk

� Supply risk

� Inflation risk.� Tax Change risk



GOVERNMENT BONDS

A debt security issued by a government to

support government spending, most oftenissued in the country's domestic currency.

Government debt is money owed by anylevel of government and is backed by the full

faith of the government.



Lending to a national government in the

country's own sovereign currency,

government bonds, are free of credit risk,

because the government can raise taxes or

simply print more money to redeem the bond

at maturity



The Indian bond market, however, is today at par

with some of the leading markets of Asia like Korea.

The grapevine is that in a few years, the Indian bond

market will be counted as a renowned market of theworld

The Government of India bonds (GOI bonds) enjoyed

an increase of about 8% of GDP - from 28% to 36.7%

from 1991 to 2001.



MUNCIPAL BOND

� A debt security issued by a state, municipality

or county to finance its capital expenditures.

Municipal bonds are exempt from federal

taxes and from most state and local taxes,

especially if you live in the state in which the

bond is issued.

� Also known as a "muni".



� Municipal bonds may be used to fund

expenditures such as the construction of

highways, bridges or schools. "Munis" are

bought for their favourable tax implications.

� Popular with people in high income tax

brackets.



Municipal bonds, the best way to access

market funds

The size of municipal bond market in USA grew byabout 90% between 2000 and 2005, with fresh bond

issuances of about $459 billion in 2005. The US

municipal bond market has been in existence for

more than 150 years, and its size is more than that of the market for US corporate debt.



Although India's municipal corporations are

yet to avail of municipal bonds in a big way,

the scenario seems likely to change. With

increasing urbanisation pushing demand for

infrastructure, and GoI's proposed thrust for

infrastructure development, municipal bonds

appear certain to set off an urban revolution



MORTGAGED BACKED SECURITY

A type of asset-backed security that is secured

by a mortgage or collection of mortgages. These

securities must also be grouped in one of the top

two ratings as determined by a accredited creditrating agency, and usually pay periodic payments

that are similar to coupon payments

Also known as mortgage-related security" or a

"mortgage pass through"



TYPES OF MBS

1. Residential MBS: RMBS is a pass-through MBS

backed by mortgages on residential property.

2. Commercial MBS: CMBS s a pass-through MBS

backed by mortgages on commercial property.

3. A collateralized mortgage obligation (CMO) is a

more complex MBS in which the mortgages are

ordered into tranches by some quality (such asrepayment time), with each tranche sold as a

separate security.



FUNDING BONDS

Funding bonds issued to cover an interestliability

Funding bonds include

� bonds,

� stocks,

� shares,

� securities or

� certificates of indebtedness



DEBT INSTRUMENTS



DEFINITION

� A paper or electronic obligation that enables

the issuing party to raise funds by promising to

repay a lender in accordance with terms of a

contract.

� Types of debt instruments include Government

Securities, Corporate Bonds, Certificate of

Deposit, Commercial papers.



GOVERNMENT SECURITIES

� Government debt (also known as public

debt, national debt, sovereign

debt) is money (or credit) owed by a central

government.

� Reserve Bank of India issues Government Securitiesor G-Secs on behalf of the Government of India.

� Maturity period - 1 to 30 years.



� G-Secs offer fixed interest rate.

� For shorter term, there are Treasury Bills or T-Bills, which are issued by the RBI for 91 days,

182 days and 364 days.



CORPORATE BONDS

� A corporate bond is a bond issued by a corporation.It is a bond that a corporation issues to raise moneyin order to expand its business.

� Comes from PSUs and private corporations .

� Extensive range of tenures up to 15 years.

� Risky when compared to G-Secs.

� Higher returns when compared to G-Secs.



COMMERCIAL PAPERS

� An unsecured, short-term debt instrument issued

by a corporation, typically for the financing of

accounts receivable, inventories and meeting

short-term liabilities.

� Maturity of 7 to 365 days.

� Issued by corporate entities at a discount to face

value.



CERTIFICATE OF DEPOSIT

� A certificate of deposit is a promissory note issued bya bank. It is a time deposit that restricts holdersfrom withdrawing funds on demand.

� Negotiable money market instruments.

� Offer higher returns than Bank term deposits.

� Banks - maturity between 7 days and 1 year.

� Financial Institutions - maturity between 1 and 3

years



BOND MARKET PARTICIPANTS� Bond market participants are similar to participants in most

financial markets.

� Are essentially either buyers (debt issuer) of funds or sellers

(institution) of funds and often both.

Participants include

� Institutional Investors

� Government

� Traders

� Individuals



INSTITUTIONAL INVESTORS

�Pool a large sum of money and invest the sums insecurities, real property.

�Typical investors include banks, insurance

companies, mutual funds.

�As per the current regulations, Indian companies

can issue bonds in Indian currency and foreign

investors can invest in these bonds upto $20billioncollectively.



TRADER

�A trader is someone who buys and sells financialinstruments such as stocks,bonds,commodities and

derivatives.

�Fixed securities are referred to as bonds and they

provide fixed return based on interest rate.

�Institutional trader

�Independent trader



GOVERNMENT

PSU bonds are bonds issued by central PSUs (i.e. PSUfunds )

Corporate bondsBonds that are issued by public sector undertakings

and private corporations for a wide range of tenors butnamely up to 15years.



REGULATION



REGULATION

Consists of a set of rules and

restrictions

ensuring market stability .protecting onshore financial

institutions

from offshore competition.

Economic regulation

Prudential regulation



ECONOMIC REGULATION

economic rules and restrictions.

undermine the free operation of market

forces by prohibiting certain business

activities.

Egs: market entry restrictions, capital

controls, price controls and certain

taxes.



PRUDENTIAL REGULATION

meant to protect investors, ensure that

financial markets are fair, transparent

and efficient and reduce systemic risks.

stresses transparency, market

discipline and self regulation and not

just compliance with formal rules.



About RBI

� Nations Central Bank

� 1935

� Managed by Central Board of Directors

� India¶s monetary authority

�



� Issuer of currency

� Manager of foreign exchange

reserves

� Banker and debt manager to

government� Supervisor of payment

system

�



Organizations & Functions

� Establishment

� Preamble

� Central Board� Legal Framework

� Main Functions

� Departments� Offices

� Training Establishment

� Subsidiaries



Role of RBI in Debt Market

� Prohibition of RBI¶s subscription

� Central Government as a financial

intermediary for State Governments� 8.1 per cent

� investments in both infrastructure

and industry accelerate

� Central and State Governments in

consonance with the Central and



About SEBI

The Securities and

Exchange Board of Indiawas established on April

12, 1992 in accordancewith the provisions of the

Securities and Exchan e



FUNCTIONS OF

SEBI

� Regulating the business in stock

exchanges and any other

securities market.

� Registering and regulating the

working of stockbrokers, Sub-brokers, share transfer agents,

bankers to an issue, merchant ban

kers ,



� Registering and regulating the wor

king of collective investment

schemes including mutualfund� Promoting and regulating self-

regulatory organisation.

� Prohibiting fraudulent and unfair trade practices relating to

securities market.

� Promotin investors· education an



Classification of Indian Debt Market

Indian debt market can be classified into two

categories:

1-Government Securities Market (G-Sec Market)

2-Bond Market



Government Securities Market

(G-Sec Market)

� It consists of central and state government

securities. Government Securities are

securities issued by the Government for

raising a public loan or as notified in the

official Gazette. They consist of Government

Promissory Notes, Bearer Bonds, Stocks or

Bonds held in Bond Ledger Account. They maybe in the form of Treasury Bills or Dated

Government Securities.



Features of Government Securities

Issued at face value

No default risk as the securities carry

sovereign guarantee.

Ample liquidity as the investor can sell the

security in the secondary market

Interest payment on a half yearly basis on face

value

No tax deducted at source



Bond Market

� It consists of Financial Institutions bonds,

Corporate bonds and debentures and Public

Sector Units bonds. These bonds are issued to

meet financial requirements at a fixed cost

and hence remove uncertainty in financial

costs.



Advantages

� Assured returns

� High liquidity



Disadvantages

� Less Returns

� Less retail participation

Documents

Final Presentation financial market