CAPITAL MARKET MATURE IN INDIA

Rahul Tank

INTRODUCTION

Capital Market is a market in which securities are traded. Capital markets include the stock and bond markets.

The different types of financial instruments are :• Equity instruments• Credit market instruments• Insurance instruments• Foreign exchange instruments• Derivative instruments

Financial Innovation in Global Capital Market

• Sudden spurt in financial innovation seen in recent years.

• World financial markets are intertwined in their performances.

• It has led to the development of new financial centers like Singapore, Middle-East (Dubai), Hongkong etc.

Capital Market of USA

It is considered as a very strong and developed capital market. It is the largest in the world.

The list of stock exchanges in USA in given below: • New York Stock Exchanges• NASDAQ• Philadelphia• Boston Stock Exchanges• American Stock Exchanges• Chicago Stock Exchanges• New York Board of Trade

Turnover velocity of various exchangeExchange 2009 2008 2007

NASDAQ OMX 1242.60% 1026.50% 625.20%

Shenzhen SE 334.00% 235.90% 389.20%

Korea Exchange 248.80% 196.30% 192.60%

NYSE Euronext (US) 228.40% 240.20% 166.90%

Shanghai SE 170.60% 118.20% 211.00%

Borsa Italiana 166.60% 182.30% 204.10%

BME Spanish Exchanges 164.50% 171.40% 191.90%

Taiwan SE Corp. 162.50% 145.50% 153.30%

Tokyo SE 145.90% 151.20% 138.40%

London SE 137.90% 152.70% 154.20%

NASDAQ OMX Nordic Exchange 134.10% 138.00% 137.00%

NYSE Euronext (Europe) 120.60% 141.80% 136.90%

SIX Swiss Exchange 116.00% 121.80% 133.90%

TSX Group 111.80% 103.80% 83.70%

Australian SE 103.50% 113.00% 101.60%

Hong Kong Exchanges 88.60% 86.00% 94.10%

National Stock Exchange India 86.60% 75.70% 67.70%

INDIAN CAPITAL MARKETS – AN

OVERVIEW

Reforms in the Indian Capital Markets

• Derivative Trading• Mutual Funds• Dematerialization of Securities• Technological Advancements• FII’s

Political

Economical

Social

Technological

Environmental

Legal

PESTEL Analysis: India Vs. US

Maturity: A distant dream?

Macro Economic Factors

• Financial Literacy– FLEC (US), FSA Campaign (UK)

• Bureaucratic Hurdles– Stringent Rules– Corruption

• Lack of Participation• Market Reach & Infrastructural Issues• Low Per Capita Income (`44,345)

Necessary Products

• India VIX – Real Time Calculation

• Forex – Currency Options

• Bond Market – Interest rate futures

• Freight Index

• Weather Derivatives

• Credit Derivatives

Aashish Singhee

REITs

IndiaREIT Aditya Birla Real Estate FundFund Size 500 CR. 750 CR.

Green-Shoe Option 250 CR. 250 CR.

Minimum Commitment 25,00,000/- 50,00,000/-Draw down Tenure 3years 3yearsInitial Draw Down 20% 20%

Fund Tenure 7+1+1 6+1+1Hurdle Rate 10% 10%Profit Share 80/20 80/20

Investor Exit

Mapped to Disinvestments in investee companies OR third

party sale100% capital, then 10% returns,

then Balance in the ratio of 80/20Management Fees 2% 2%

One time set up Fees 2% 3%

A FLIP SIDE

Barings Bank Strength to Bankruptcy

Loopholes in Risk management System Nick Leeson – Man who was turned Bank upside down He was an Operations manager, General Manager with Authority to

Hire Traders and Back office staff They performed 2 types of trading :

1. Transacting futures and options orders for clients or for other firms within Barings organization.

2. Arbitraging price difference between Nikkei futures traded on the SIMEX and Japan’s Osaka’s exchange

3. Hedging By end of 1992, A/C 88888 was under water by 2 Millions GBP By end of 1993, A/C 88888 was 23 Million GBP negative By 1995, A/C 88888 was 827 Million GBP which made a BIG

HOLE in Balance Sheet of Barings Bank

Amaranth Hedge FundWhat happens when your

Friendly Banker becomes - PREDATOR

JP Morgan was prime broker (Clearing Firm) Amaranth Bet on energy future Markets JP Morgan was aware of the market Friend turned Foe Amaranth Hedge Fund sold to JP Morgan for

$1.2 Billion JP Morgan made $725 Million for its deal

CONCLUSION

Thank you !!!

Aashish Singhee