Introduction to Financial MarketsPresented by

Dr.K.Prabhakaran MBA,M.Phil.,PGDMM.,Ph.D.Faculty- Finance

RVS Faculty of Management Coimbatore &

SEBI Financial Education Trainer

AgendaAgenda Introduction Financial Market Human life Cycle Various Investment Avenues Risk & Return Life Cycle Investment Guide NISM Certificate Examinations Employment Opportunities in Finance Finance Website Successful Invest Mantra

Commitment of money that is expectedto generate additional money. Investment is putting money into an

asset with the expectation of capitalappreciation,dividends,and/or interestearnings.

Investment

Investor An investor is a person or entity who

invests money in various asset classesfor financial gain.Investors can be individuals or

companies that purchase equity, debtsecurities, currency, real estate andcommodity derivatives to generateincome streams, capital appreciationor both.

The professional management of assets, suchas real estate, and securities, equities, bond andother debt instruments, is called investmentmanagement.

Investment management services are soughtby investors, which could be companies, banks,insurance firms or individuals, with the purposeof meeting stated financial goals.

Investment Management

Savings and Investments We are taught to save. And we save.

Are we taught to invest? And do we invest? 0.0

5.010.015.020.025.030.035.040.0

Household Savings Rate

Savings vs. Investment Short term vs. Longer term Emergency vs. Planned Outlay Low returns vs. Beating the inflation

We are so busy saving that we forget to invest

All-India

Urban

Rural

0%

2%

4%

6%

8%

10%

12%

All-India Urban Rural

Equity Investor Household(Percent of Total Household)

Steps in Investing

Identifying your Surplus funds Identifying products Choosing intermediary Completing registration formalities Deciding on what, when and how much Monitoring the market movements Decision on Stop Loss or Book Profit

Financial MarketA market is a venue where goods and services

are exchanged.A financial market is a place where individuals

and organizations wanting to borrow funds arebrought together with those having a surplusof funds.

Types of Financial MarketsCapital Market

Money Market

Forex Market

EquityDebt

RetailCorporateBanksFIFIIs

T-BillsCall Money,CP, CD

BanksCorporateFI, FIIs

SpotsFuturesForwards

BanksCorporateFI, FIIs

AgricultureProduces,Metals,Financialfutures likeInterest rate,currency,indices etc

Banks, FIsCorporate

DerivativesMarket

Human Life Cycle – Disciplined Planning

IncomeIncome

AgeAgeBirth & EducationBirth & Education Earning YearsEarning Years RetirementRetirement

Phase IPhase I Phase IIPhase II Phase IIIPhase III

22 yrs22 yrs 60 yrs60 yrs

MarriageMarriageChild birthChild birth

Child’s EducationChild’s Education

Child’s MarriageChild’s Marriage

HousingHousing

22 yrs22 yrs 38 yrs38 yrs Over 25 Over 25 -- 30 yrs30 yrs

Having a Financial Goal is primary to starting a Investment Plan.

INVESTMENT ACTIVITY (ACQUISITION OF ASSETSINVESTMENT ACTIVITY (ACQUISITION OF ASSETS) )

CASH

BANK DEPOSITS

P.F./LIC

PENSION

POST OFFICE

INVESTOR

SAVER

SHARES, BONDS,GOVT. SECURITIES,

MUTUAL FUNDS,CURRENCIES

1. FINANCIAL 1. FINANCIAL ASSETSASSETS

2. PHYSICAL ASSETS2. PHYSICAL ASSETS

NEW NEW ISSUE ISSUE MARKETMARKET

3. MARKETABLE 3. MARKETABLE ASSETSASSETS

SECONDARYSECONDARYMARKETMARKET

HOUSE, LAND ANDBUILDINGS

GOLDSILVER

OTHER METALS

CONSUMERDURABLES

Various Investment Avenues

There are many options today to invest your money in

Equity SharesGold Currency

Bank Deposits Real Estate Mutual Funds

Post office Deposits

Insurance Debt Market

Debt Market It is a trading of fixed income instruments.

Fixed income instruments could be securitiesissued by Central and State Governments,Municipal Corporations, Govt. Bodies or byprivate entities like financial institutions,banks, corporates, PSU, etc.

Debt market in India comprises mainly of two categories Government Securities Market Corporate Debt Market

Debt Market -Regulation SEBI – For Primary and secondary debt

market, Private placement of Corporate debt(Above one year maturity)

RBI – Less than one year NCDs

Equity SharesTotal equity capital of a company is

divided into equal units of smalldenominations, each called a share.For example, in a company the totalequity capital of Rs 2,00,00,000 isdivided into 20,00,000 units of Rs 10each. Each such unit of Rs 10 is calleda Share.

SEBI Securities and Exchange Board of India(SEBI) - A statutory body established underthe SEBI Act, 1992

Objectives Protect the interests of Investors Promote and Development the Securities

Market Regulate the Securities Market

Primary and Secondary Market Primary Market is a place where new

offerings by Companies are made either asan Initial Public Offering (IPO) & FollowingPublic Offering (FPO).

Secondary Market is a market wheresecurities are traded after being initiallyoffered to the public in the Primary Marketand/or listed on the Stock Exchange.

Eligibility Criteria for Issue of Primary Market

Profitability RelatedAssets – Rs.3 Crores, Net worth Rs.1 CroreDistributable profits, Issue size < 5 * Net worth

QIB related 50 % allotment to QIBs

Post issue capital = 10 Crores

Primary Market- FactsYear Number of

IssuesAmount Raised (Rs. In Crores)

2008-09 47 16,620

2009-10 76 57,555

2010-11 91 67,609

2011-12 71 48,468

2012-13 69 32,445

Apr 13-Dec 13 50 27,716

STOCK EXCHANGE Stock exchange is that place where trading of

shares is done in terms of sale and purchase. There are 19 stock exchanges in the India . BSE is oldest stock Exchange in Asia. It was

started at 1875.Parameter is SENSEX. NSE is the first online stock exchange in India.

It was started at 1992.Parameter is NIFTY. MCX-SX is New stock Exchange in India. It

was started at Feb 2013.Parameter is SX-40.

Trading & Settlement Process

InvestorDepository

Exchange

BrokerClearingHouse

Market ParticipantsParticulars As on 31st Dec 2013Regulators MoF, MoCA, SEBI,RBI

Stock Exchanges Cash Segment – 19 &Derivative Segment - 3

Underwriters 3 Brokers 9,150

Sub brokers 54,846R & T Agents 72Custodians 19

Depositories and DPs 2 and 866FII 1739

Merchant Bankers 198

Secondary Market Facts -BSE2008-09 2009-10 2010-11 2011-12 2012-13 Apr 13 to

Dec 13

Number of Companies

listed

4,929 4,975 5,067 5,191 5,211 5,294

Turnover Cash Segment

(Rs .Cr.)

11,00,075 13,78,809 11,05,027 6,67,498 5,48,774 3,75,015

Market Capitalisation

( Rs.Cr.)

30,86,075 61,65,619 68,39,084 62,14,941 53,48,645 70,44,258

Secondary Market Facts -NSE2008-09 2009-10 2010-11 2011-12 2012-13 Apr 13 to

Dec 13

Number of Companies

listed

1,432 1,470 1,574 1,665 1,666 1,679

Turnover Cash Segment

(Rs.Cr)

27,52,023 41,38,023 35,77,410 28,10,893 27,08,279 20,87,367

Market Capitalisation

( Rs.Cr.)

28,96,194 60,09,173 67,02,616 60,96,518 52,32,273 68,84,167

Stock Price Movements

The price of every stock increases or decreases for the following Two Analysis.

1.Fundamental Analysis Economic Analysis

(GDP,Inflation,Bank Rate, Political, Budgets, Infrastructure,FDI) Industry Analysis

(Growth,ILC, Structure, Nature of Competition, Profitability) Company Analysis

(Market Share, Sales, Capital Structure, SWOT Analysis , Dividends, Financial Analysis)

Stock Price Movements2.Technical Analysis

Technical analysis is a method of evaluatingsecurities by analyzing the statistics generatedby market activity, such as past prices andvolumes.

Charts (Line, Candle & Bar Chart) Technical Indicators (RSI, EMA,MFI &Pivot Point) Market Efficiency (Strong, Semi Strong & Weak

Form) Market Analysis with the help of Dow Theory,

Elliot wave theory, Random Walk theory, etc.

Mutual Funds A Mutual Fund is a trust that pools the

savings of a number of investors who sharea common investment objective in turn buyassets. It is a Professionally managed poolof funds.

Types of Mutual funds- Open Ended Schemes- Close Ended Schemes- Interval Schemes

BENEFITS OF MUTUAL FUNDS

Professional Management & AnalysisDiversification & Divisibility

Across Companies & SectorsLiquidity

Entry & Exit at NAVTransparency

Regular disclosuresConvenient Administration (Record Keeping)Low Costs of operations (Lower transaction cost)Choice of schemes.Well Regulated By SEBI

Mutual Funds in India More than 41 Mutual funds Companies

(AMC) in India More than 1000 schemes are available in

India. Best Schemes are

- Equity, ElSS, Growth, Index, Liquidity & Gold ETF

• Best Plans are- SIP & STP

Calculation of NAV(Net Asset Value)Formula

= Net Value of Assets / Number of Units Outstanding.

Insurance Insurance is an economic tool by which one

can exchange large uncertain financial losswith a small & definite cost called‘premium’.

Types of Insurance - Life Insurance- General Insurance(Non Life)

Insurance Companies in India Life Insurance Companies

Private Sector- 20Public Sector- 1

General Insurance Companies(Non Life)Private Sector-12Public Sector- 4

Types of Life Insurance Plans

Pure Term Pure Endowment Annuities Group Insurance ULIP

• TROP• Endowment• Money Back• Whole Life• Par & Non-par

Types of Non Life Insurance Fire Insurance: (Protection for property against Fire & other Special Perils)Marine Insurance: (Cover the loss / damage to goods, during transit)Motor Insurance:(For Vehicles, Personal Accident, Liability to Third Parties) Personal Accident Ins: (Cover the insured sustaining injury from Accident) Health Insurance:(Reimburses Hospitalization expenses)Liability Insurance: (Covers personal injury toThird Parties & their property)Engineering Insurance: (Cover Civil, Mechanical Contractors & Industries)Miscellaneous Insurance: (Householders / Shopkeepers Insurance etc.,) Rural Insurance: (Covers Cattle ,Poultry, Pump set etc. of rural population)

Growth of Indian Insurance Companies

Market Share of Insurance Companies in India

Commodity MarketsCommodity markets are markets where the

raw or primary products are exchanged.

Commodities are traded on regulated

commodity exchanges

They are bought and sold in standardized

contracts

Commodity Exchange in India

Multi Commodity Exchange, Mumbai

National Commodities and Derivatives

Exchange, Mumbai

National Multi Commodity Exchange of India,

Ahmadabad

National Spot Exchange, Mumbai

Currency MarketNSE was the first exchange to have received

an in-principle approval from SEBI forsetting up currency derivative segment.

The exchange launched its currency futurestrading platform on 29th August, 2008.

Currency Options was introduced onOctober 29, 2010.

Products of Currency Market US DOLLAR EURO POUND STERLING JAPANESE YEN

RISK AND RETURNRISK AND RETURN

Risk taking Ability

Income

Expenditure Assets

Liabilities

Risk-Return RelationshipRISK : Risk is possibility of

harm, injury, loss, danger or destruction.• Risk is unpredictable.

• Risk is uncertainty about future.

• Risk is the possibility of adverse deviation from

expected outcomes.

• Risk is outcome that is not favorable.

RETURN: Return differs amongst different

instruments. The most important factor influencing

return is risk. Normally, the higher the risk ,the

higher is the return.

Ret

urn

Deposits(FD,PPF,PO)

Mutual Funds

Equity Shares

Risk and Return Relationship for Some Investments

Bonds , Debentures

Derivatives

Risk

Real Estate

Life Cycle Investment GuideLate Thirties to Early Forties

10%

5%

30%55%

REAL ESTATECASHBONDSSTOCKS

Mid Fifties

13%

5%

38%

44%REAL ESTATECASHBONDSSTOCKS

Late Sixties and beyond

15%

10%

50%

25%REAL ESTATECASHBONDSSTOCKS

Choosing the Right Investment Options

Safety

ReturnsLiquidity

NISM Certifications-SEBIMore than 15 Modules are available . Important Modules are

NISM Series VII: Securities Operations and Risk Management

NISM Series VIII: Equity Derivatives

NISM Series I: Currency Derivatives

NISM Series VI: Depository Operations

NISM Series V A: Mutual Fund Distributors

NISM Series XI: Equity Sales

nism.ac.in-quick link-nism certifications

NCFM 2009/10

Employment Opportunities

Public and Private Sector Banks- Financial Institutions Regulatory Bodies-(SEBI,RBI,FMC,MCA,MOF) Stock Broking Companies Mutual Fund Companies FOREX Market(Currencies) Commodity Markets Insurance Companies

Websites

www.myiris.com www.moneycontrol.com www.investopedia.com www.nseindia.com www.bseindia.com www.mcxindia.com www.sebi.gov.in www.nism.ac.in www.imf.org www.rbi.gov.in www.ssrn.com

Success Investment Mantra

Safe Life

Happy Investing