FINtastic Women Your Pathway To Be The Household CFO
Introduction to Investments and Capital Markets Learning Outcome Statements - 1 FINtastic Women Program International College of Financial Planning
Introduction to Investment • Investment refers to the employment of funds to earn returns. • It requires sacrifice of present consumption to get return in future. Return > Inflation 10% > 6% • This ensure that we’ll have enough funds to purchase goods & service which were sacrificed earlier. FINtastic Women Program International College of Financial Planning
Factors Affecting Investment Decision Return Risk Liquidit y Taxation Horizo n FINtastic Women Program International College of Financial Planning
Role of Capital Market Saving, Fixed Income – Spending = Deposits SavingInsdividual , Bank, Exchange, Insurance, Post Deficit SCoumrppalnuiess, office etc. International College of Financial Planning Intermediaries FINtastic Women Program
Overview of Indian Financial Markets Primary Market Secondary Market FINtastic Women Program International College of Financial Planning
Financial Securities Equities Fixed Income Commodity Forex FINtastic Women Program International College of Financial Planning
FINtastic Women Program Equity Market Learning Outcome Statements - 2 International College of Financial Planning
FINtastic Women Program International College of Financial Planning
Primary Security Market • Suppose XYZ having business of worth 1 crore, looking for expansion in business and for next project needed 20 lakhs rupees. What are the source of fund he can look for?? Loan from Bank Retained Earning Debt or International College of Financial Planning Borrow Equity Share / Selling small portion FINtastic Women Program
Primary Security Market Cont. Total 1 Cr. Sold 20% for 20 XYZ is holding 80% now rest he made public as the part owlnaekrhon company.FINtastic Women Program International College of Financial Planning
How this Public Offering Work ? FINtastic Women Program International College of Financial Planning
Initial Public Offering • Corporations generally contract with an investment bank to help them sell their securities to the public. • The investment bank then lines up subscribers who will buy the security. Investment bankers call this process book building. The book builder is called the book runner. • Investment banks often support their book building by providing investment information and opinion about the issuer to their clients and to the public • Before a public offering, the issuer typically provides detailed information about its business and inherent risks as well as the proposed uses for the money it hopes to raise. • This information is offered in the form of a prospectus to potential investors. FINtastic Women Program International College of Financial Planning
Initial Public Offering Cont. • The most common offering type for initial public and seasoned offerings is an underwritten offering. In an underwritten offering, the investment bank acts as an underwriter. • In the book building process, the right offering price is particularly important. If there are not enough buyers for all the securities that are for sale, the offering is said to be undersubscribed. • If there is more demand than securities for sale, the offering is said to be oversubscribed • In the case of oversubscription, the securities are often allocated by the investment bank to preferred clients or on a pro rata basis, by which all investors get a set proportion of the shares they ordered. FINtastic Women Program International College of Financial Planning
Pricing of Public Issue Fixed Price Prospectus Book Building Fixed price decided by Process company with consultation of Lead manager. Red-Herring The objective of a book buildinPgrporsopceecsstuissto identify the price that the market is willing to pay for the securities being issued by the company FINtastic Women Program International College of Financial Planning
Draft Red Herring Prospectus (DRHP) • The document clarifies the reason why the company wants to raise money from the public, how the money will be used and risks involved in investing in the company. • A draft Red Herring Prospectus (DRHP), or offer document, is the preliminary registration document prepared by merchant/ investment bankers for prospective IPO-making companies in the case of book building issues. • The document includes information about the company’s business operations, promoters, financials, its standing in the industry it deals in and listed or unlisted peers. • The role of the merchant banker, in this case, is to take care of the legal compliance issues and ensure that prospective investors are aware and kept in the loop of public issue. FINtastic Women Program International College of Financial Planning
Draft Red Herring Prospectus (DRHP) Cont. • It does not contain details of either price or number of shares being offered or the amount of issue. • This means that in case price is not disclosed, the number of shares and the upper and lower price bands are disclosed. • The price cannot be determined until the bidding process is completed. In case of book- built issues, such details are not shown in the red herring prospectus filed with ROC in terms of the provisions of the Companies Act. • SEBI reviews the draft document and checks if adequate disclosures are made. It gives its observations to the merchant bankers, who make the required changes and file the final offer document with Sebi, the ROC and stock exchanges. FINtastic Women Program International College of Financial Planning
How this Public Offering Work ? FINtastic Women Program International College of Financial Planning
FINtastic Women Program International College of Financial Planning
Key Terms Related to IPOs. • Qualified Institutional Buyers (QIB)- involves companies or organizations that invest in people or investment portfolio. These companies are given a reserved quota of 50% in IPOs, and they invest with very high capital. Some examples of QIBs are Insurance companies, Mutual funds, etc. • Non-Institutional Investors (NII): NIIs include individuals who bid for more than 2 Lakh rupees. They are also known as High Net Worth (HNI) investors. The minimum quota of 15% is reserved for Non-Institutional Investors. • Retail Investors:- A minimum reserved quota of 15% is given to Retail Investors. • ASBA provides an alternative mode of payment in issues whereby the application money remains in the investor's account till finalization of basis of allotment in the issue. FINtastic Women Program International College of Financial Planning
Key Terms Related to IPOs. • A price band is the lower and upper limit of the share price within which the company will go public. In the case of our example, the price band will be Rs.315/- and Rs.320/- • Floor Price is the minimum price (lower level) at which bids can be made for an IPO. • Similarly, the Cap Price is the maximum price (upper level) at which bids can be made for IPO. FINtastic Women Program International College of Financial Planning
FINtastic Women Program International College of Financial Planning
FINtastic Women Program International College of Financial Planning
FINtastic Women Program International College of Financial Planning
IRCTC IPO – Book Running Lead Manager Syndicate Members FINtastic Women Program International College of Financial Planning
Listing of Securities on Stock Exchange Company IPO Primary Market Sell Directly Investors Listing Secondary Market Investors Trading Share with each other FINtastic Women Program International College of Financial Planning
What happens on Listing? X Got shares from Exchang Y application got rejected Subscription at ₹300 e so he is still interest to buy now want to sell. from Exchange. X will place a sell Y is still interest in buying share at order for say ₹600 ₹600 so he will buy it from X. Exchang eAs first trade will happened at ₹600 on exchange stock will started trading from ₹600. Value of all the shareholders will increase by FINtastic Women Program 100%. International College of Financial Planning
IPO Sequence of Events Appoint Merchant Getting a nod Fix the price Closure banker from SEBI band Listing Day Apply to SEBI with a DRHP Book Building registration statement FINtastic Women Program International College of Financial Planning
Secondary Market • The secondary market is that part of the financial market where previously issued securities and financial instruments are traded. • Secondary markets play a very important role in that they provide liquidity to investors who purchased their securities in the primary market. • Investors will hesitate to participate in the primary market if they cannot subsequently sell their holdings in the secondary market. FINtastic Women Program International College of Financial Planning
What really is the Stock Market – Secondary Market For example, consider the current situation of Nifty. At the time of writing this, India is facing issue of Unlock 1.0, due to this pandemic Nifty has fallen from 12400 to 7500. People is still in dilemma that we should open the normal routine or not. Assume there are two traders – T1 and T2 FINtastic Women Program International College of Financial Planning
So at, ₹9800 - T1 will be a seller, and T2 will be a buyer in Nifty. T1 Broker 1 NSE Broker 2 T2 • Now both T1 and T2 will place orders to sell and buy the nifty respectively through their respective stock brokers. The stock broker, obviously routes it to the stock exchange. • The stock exchange has to ensure that these two orders are matched, and the trade gets executed. This is the primary job of the stock market – to create a market place for the buyer and seller. FINtastic Women Program International College of Financial Planning
What moves the Stock/Index? • Let us continue with the nifty example to understand how market really move. Imagine you are a market participant tracking nifty. • It is 10:00 AM on 9th June 2020 ,and the price of Nifty is 9800. The government makes a statement to the press that they will lift total lockdown from tomorrow. They are confident on that its now time to make move to revive economy and bring it on its feet. Two questions – 1. How will the price of Nifty react to this news? 2. If you were to place a trade on Nifty, what would it be? Would be a buy or a sell? FINtastic Women Program International College of Financial Planning
The answer to the first question is quite simple, the Nifty price will move up. When positive announcements are made market participants tend to buy the stock at any given price and this cascades into a stock price rally. Let me illustrate this further : Sl. No Time Last Traded Price What price the What does the buyer New Last Trade seller wants do? Price 01 10:00 9800.00 02 10:01 9802.00 9802.00 He buys 9802.00 03 10:03 9806.00 04 10:05 9811.00 9806.00 He buys 9806.00 9811.00 He buys 9811.00 9816.00 He buys 9816.00 Notice, whatever prices the seller wants the buyer is willing to pay for it. This buyer-seller reaction tends to push the share price higher. FINtastic Women Program International College of Financial Planning
So as you can see, the Nifty price jumped 16 Rupees in a matter of 5 minutes. Though this is a fictional situation, it is a very realistic, and typical behaviour of stocks. The stocks price tends to go up when the news is good or expected to be good. Now, moving forward in the same day, at 12:30 PM GDP data release which show -5.9% growth rate in India GDP in last quarter. By 12:30 PM let us assume Nifty is trading at 9890. Few questions for you.. • How does this new information impact Nifty? • If you were to initiate a new trade with this information what would it be? • What would happen to the other stocks in the market? FINtastic Women Program International College of Financial Planning
• So as you notice, market participants react to news and events and their reaction translates to price movements! This is what makes the stocks move. • At this stage you may have a very practical and valid question brewing in your mind. You may be thinking what if there is no news today about a particular company? Will the stock price stay flat and not move at all? • To summarize, the price moves because of expectation of news and events. The news or events can be directly related to the company, industry or the economy as a whole. For instance the appointment of Narendra Modi as the Indian Prime Minister was perceived as positive news and therefore the whole stock market moved. • In some cases there would be no news but still the price could move due to the demand and supply situation. FINtastic Women Program International College of Financial Planning
What Happens After You Own A Stock? • Once the trade is executed, the shares will be electronically credited to your DEMAT account. Likewise the shares will be electronically debited from the sellers DEMAT account. • After you buy the shares, the shares will now reside in your DEMAT account. You are now a part owner of the company, to the extent of your share holding. To give you a perspective, if you own 200 shares of Infosys then you own 0.000035% of Infosys. • By virtue of owning the shares you are entitled to few corporate benefits like dividends, stock split, bonus, rights issue, voting rights etc. FINtastic Women Program International College of Financial Planning
The History Of Bombay Stock Exchange The Bombay stock exchange traces it’s history back to the 1850s, when 4 Gujarati and 1 Parsi stock broker would gather under a banyan tree in front of Mumbai's Town hall. The location of these meetings changed many times, as the number of brokers constantly increased. The group eventually moved to Dalal Street in 1874 and in 1875 became an official organization known as “The Native Share Stock Brokers Association.” FINtastic Women Program International College of Financial Planning
Former Stock Exchange• There are 23 stock exchanges in India. Among them, two are national level stock exchanges namely BSE and NSE. The rest 21 are Regional Stock Exchanges (RSEs). • Due to stringent norms introduced by SEBI, 20 RSEs in the country opted to exit the business. Ahmedabad Stock Exchange 2018 UP Stock Exchange 2015 Hyderabad Stock Exchange 2007 Delhi Stock Exchange 2017 Vadodara Stock Exchange 2015 Magadh Stock Exchange 2007 Guwahati Stock Exchange 2015 Bangalore Stock Exchange 2014 Mangalore Stock Exchange 2004 Jaipur Stock Exchange 2015 Cochin Stock Exchange 2014 Trivandrum Stock Exchange 2010 Madhya Pradesh Stock 2015 Ludhiana Stock Exchange 2014 Years are closing date. Exchange 2015 2005 Bhubaneshwar Stock Madras Stock Exchange Exchange OTC Exchange of India 2015 Interconnected Exchange of 2014 International College of Financial Planning Pune Stock Exchange 2015 India 2009 FINtastic Women Program Coimbatore Stock Exchange
List of Indian Stock Exchanges FINtastic Women Program International College of Financial Planning
Stock Indices FINtastic Women Program International College of Financial Planning
What is Index/Indices ? • A stock market index is a statistical indicator which gives an idea about how the stock market is performing. In India the main indexes to be tracked are – The BSE SENSEX and The NSE NIFTY. • There are many other indexes that track particular sectors of the economy. • All these indexes serve the same purpose. It Dow Jones Industrial Average US gives an idea about where the financial growth Nasdaq Composite Index of a country is headed to. Nikkei 225 Japan Hang Seng Hong Kong FINtastic Women Program FTSE 100 KOSPI UK Shanghai Korea China International College of Financial Planning
What is Index/Indices ? BSE/NSE Sensex/Nifty 30/50 companies Next time you watch CNBC or NDTV Profit, watch 13 Sectors these indexes flashing on the corner of your screen. FINtastic Women Program
Significance of Index A stock index is an indicator of the performance of overall market or a particular sector. It serves as a benchmark for portfolio performance ‐ Managed portfolios, belonging either to individuals or mutual funds; use the stock index as a measure for evaluation of their performance. It is used as an underlying for financial application of derivatives – Various products in OTC and exchange traded markets are based on indices as underlying asset. FINtastic Women Program International College of Financial Planning
https://www.niftyindices.com
An index is a compilation of stocks constructed in such a manner to track a particular market or sector. These stocks would be a part of some industry or sector.
Commonly Used Jargons Learning Outcome Statements - 3 FINtastic Women Program International College of Financial Planning
Market Capitalization Market cap measures what a company is worth on the open market, as well as the market's perception of its future prospects, because it reflects what investors are willing to pay for its stock. FINtastic Women Program International College of Financial Planning
FINtastic Women Program International College of Financial Planning
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