financial markets & investing_jul'10

7/29/2019 Financial Markets & Investing_Jul'10

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Way2Wealthmaking investing simpler, more understandable and profitable.

Financial Markets & Investing

July 2010


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Financial Markets Rationale & Players

Economic System

Surplus Money Generators

Households

Deficit Money Holders

Corporate

Government

Financial Markets Savings Function - Channelize funds from -those who save to -those who needed -for productive purpose Liquidity Function

Payment Function

Risk Mitigations - Provides opportunities to various class of individuals and entities

Policy


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Financial Markets Broad Structure

Financial Assets represent a claim to the payment of asum of money sometime in the future and/or periodic

payment in the form of interest or dividend.

Provided resources needed by medium and large scaleindustries/individuals

Purpose for these resources

Establishment of New Business

Expansion

Investments

Mergers and Acquisitions

Deals in both short term & long term instruments &

funds


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Firm commodities and return of the financials led FTSE score among the matured economies, closely followedby Dowjones

Hit by exports, firm currency and weaker domestic demand leave Nikkei 225 remain under performer among

matured economies

Buoyed commodities Brazil tops the performers list among emerging economies, followed by domestic demand

driven India

Though rest of Asia perform well, remain laggard in the latest months as exports remain moderate with signsof asset price inflation

Late reaction on both fiscal and other policy let Russian equity to be the under performer among the emerging

economies

Equity Indices - Matured Economies

30

60

90

120

7/11/07 3/11/08 11/11/08 7/11/09 3/11/10

Dow

FTSE 100

CACDAX

Nikkei 225

Source:Bloomberg

Equity Markets - Emerging Economies

0

20

40

60

80

100

120

140

160

180

7/9/07 3/9/08 11/9/08 7/9/09 3/9/10

Sensex Kospi

Shanghai Hangseng

Bovespa Russia

Source:Bloomberg

Financial Markets Global Snapshot


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Financial Markets Global Snapshot

Equity Market Capitalization (bln USD)

Exchange 2009 2008 % Change Key Indice

NYSE Euro next (US) 11 838 9 209 28.5%

Tokyo Stock Exchange Group 3 306 3 116 6.1% Nikkei

NASDAQ OMX (US) 3 239 2 249 44.0% Nasdaq Composite

NYSE Euro next (Europe) 2 869 2 102 36.5% NASDAQ

London Stock Exchange 2 796 1 868 49.7% FTSE

Shanghai Stock Exchange 2 705 1 425 89.8% Shanghai Composite

Hong Kong Exchanges 2 305 1 329 73.5% Hangseng

TMX Group 1 608 1 033 55.6%

BM&FBOVESPA 1 337 592 125.9% Bovespa

Bombay SE 1 306 647 101.9% Sensex

Source: WFE

Exchange at US and Europe continue top the total market capitalization

But the growth in capitalization is higher among Asian and Latin American countries

Key global indices are DJIA, Nasdaq Composite, FTSE, Nikkei, Hangseng, Sensex etc


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Indian Financial Markets Derivatives Performance

Top exchanges by number of stock index futures contracts traded

Exchange 2009 2008 % Change

1. CME Group 703 072 175 882 432 628 -20.3%

2. Eurex 367 546 179 511 748 879 -28.2%

3. National Stock Exchange India 195 759 414 202 390 223 -3.3%

4. Osaka Securities Exchange 130 107 633 131 028 334 -0.7%

5. Korea Exchange 83 117 062 66 436 912 25.1%

Source: WFE

Top exchanges by number of stock index options contracts traded

Exchange 2009 2008%

change

1. Korea Exchange 2 920 990 655 2 766 474 406 5.6%

2. Eurex 364 953 360 514 894 678 -29.1%

3. National Stock Exchange India 321 265 217 150 916 778 112.9%

4. Chicago Board Options Exchange 222 781 717 259 496 193 -14.1%

5. Taifex 76 177 097 98 122 308 -22.4%

Source: WFE


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Indian Financial Markets Derivatives Performance

Top exchanges by number of single stock futures contracts traded

Exchange 2009 2008 % change

1. NYSE Liffe Europe 165 796 059 124 468 809 33.2%

2. National Stock Exchange India 161 053 345 225 777 205 -28.7%

3. Eurex 113 751 549 130 210 348 -12.6%

4. Johannesburg Stock Exchange 88 866 925 420 344 791 -78.8%

5. BME Spanish Exchanges 37 509 467 46 237 747 -18.9%

Source: WFE

Largest growth by total value of bond trading in 2009

Exchange % change

1. Amman Stock Exchange 316.4%

2. Irish Stock Exchange 252.2%

3. Colombia Stock Exchange 105.0%

4. Egyptian Exchange 98.0%

5. Bombay Stock Exchange 86.6%

6. Oslo Bors 82.8%

7. Tokyo Stock Exchange 73.2%

8. National Stock Exchange India 69.9%

9. Shenzhen Stock Exchange 53.4%

10. TMX Group 52.5%


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Agenda

Financial Markets

Rationale, Players and Structure

Indian Capital Markets - History, Exchanges & Performance

Other Derivatives

Regulator

Research

Opportunities & Challenges

Outlook

What and How to Invest in Equity

Indian Financial Markets


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Financial Markets Concept Of Equity

Equity Claim on the (profits) company

Why Company issue Shares

To rise capital

Equity Vs. Debt and Equity comes with less cost

To enhance the current business activity, acquire new or venture into a new area of business

To manage working capital

To gain the market share and increase the presence

Increase the visibility of the company


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Financial Markets Concept Investing

What is Investing?

Identifying and translating all the financial needs of an individual to monetarilymeasurable goals.

Why do we need to Invest

To fund our future needs

To protect our future from unforeseen contingencies

To maintain the same standard of living even after retirement

To mitigate risk through diversification

To choose assets commensurate with the investors life and wealth stages

To beat the ravages of inflation


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Financial Markets Concept Of Investing

Objectives Of Investing

Identify requirement for money for different purposes and prioritise the same

Converting requirements into need & in terms of money and time

Take stock of current financial position to ascertain, net worth & income/expenses

Plan savings and investments in a manner that enable one achieve the pre-determined goals

Optimise returns through adequate diversification in sync with the ones riskreturn

Can one individually chart Investment Plan?

Are you & your family are financially secure with the investments you have made

Do the cash flows arising from your investments be sufficient to match the expected

expenses & are tax efficient?

Have you made adequate provisions for special purposes (Childrens education & marriage)

If your answer is NO to any one or all of the above questions, you need a specialist to

handle your finances and that is where the W2W helps your investments to grow


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Systematic Investing

Equity markets are synonymous with uncertainty and volatility. The average investor

invariably suffers from such market gyrations. Systematic investing is a strategy of notonly preserving capital but also translating into substantial creation of wealth in long

run

It simply means investing Fixed Amount every month

A method of investing regularly to benefit from the stock market volatility

The first step towards achieving financial goals and objectives.

To imbibe financial discipline

To eliminate the need to time the markets

To successfully achieve the financial goals and objectives

To harness the power of compounding by investing with a long term perspective


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Rupee Cost Averaging

4772.50500

205100

1010100

812.5100

520100

425100

Units

bought

Purchase

Price

Systematic

Investing

5065500

520100

1010100

205100

1010100

520100

Units

bought

Purchase

Price

Systematic

Investing

4480500

425100

520100

520100

1010100

205100

Units

bought

Purchase

Price

Systematic

Investing

Fluctuating Markets Declining Markets Rising Markets

Avg NAV : Rs 13.00 (65/5)Avg. Unit Cost : Rs 10.00(Rs 500/50)

Avg. NAV : Rs 14.50 (72.50/5)Avg. Unit Cost : Rs 10.64(Rs 500/47)

Avg. NAV : Rs 16.00 (80/5)Avg. Unit Cost : Rs 11.36(Rs 500/44)

Fi i l M k C Of I i


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Power Of Compounding - Rs 5000 invested per month

33,42,53413,76,0854,42,8732,25,57815%

24,97,90111,50,1934,08,3482,15,38412%

20,72,35210,24,2253,87,1852,08,90910%

Value at the end

of 15 yrs

Value at the end

of 10 yrs

Value at the end

of 5 yrs

Value at the end

of 3 yrs

Rate of Return

Golden Rules Of Investing

Invest early, regularly and systematically for a longer period

Ensure adequate liquidity for contingencies of life

Ensure adequate diversification by investing across asset classes and time horizons

Do not attempt to time the market. Patience is the key

Be realistic in expectations of returns

Balance investments in accordance with your risk-return framework

I di Fi i l M k t


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Agenda

Financial Markets


Why and How to Invest in Equity

Other Derivatives

Regulator

Research


Outlook

Indian Capital Markets - History, Exchanges & Performance


I di Fi i l M k t Hi t


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Indian Financial Markets History

History of Indian Stock Market

From Scattered and small beginning in the 19th Century, Indias stock market has risen to great heights

By 1990, we had 19 stock exchanges (national + regional) in the country

As a move towards integrated national level exchanges BSE & NSE became prominent by late 1990s

BSE has the roots at Native shares and stock brokers association established in 1875, later recognized by GoI

in 1956

The launch of SENSEX in 1986 was later followed by BSE National Index (Base: 1983-84 = 100) Jan 1989

BSE National Index was renamed as BSE-100 Index from Oct- 1996 (taking into consideration only the prices

of stocks listed at BSE)

The BSE has deployed an Online Trading system (BOLT) on March 14, 1995

National Stock Exchange (NSE) got its recognition as a stock exchange in July 1993 under Securities Contracts

(Regulation) Act, 1956

NSE's leading index is Nifty 50 or popularly Nifty and is composed of 50 diversified benchmark Indiancompany stocks

Although late than BSE, National Stocks Exchange is currently the leading stock exchange in India in terms oftotal volume traded

Further liberalization India expected to see another one or two equity exchanges in the neat future

I di Fi i l M k t G th


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Indian market capitalization has registered a CAGRof 39.7 percent during 2002-2009

Total listed companies in domestic exchanges

registered a CAGR of 2.4 percent during 2002-2009

Total New companies listed each year on exchangesregistered a CAGR of 6.3 percent during 2002-2009

Globalization, increased domestic retail &institutional participation resulted this phenomenalgrowth

Indian Financial Markets Growth

Indian Market Capitalization (mln USD)

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

2002 2003 2004 2005 2006 2007 2008 2009

Market Cap (mln USD)

Source: WFE

New Companies Listed on Indian Exchanges

36

77

50

79

337

0

50

100

150

200

250

300

350

400

2002 2003 2004 2005 2006 2007 2008 2009

New Companies Listed

Source: WFE

Total No.of listed compnaies on Indian Exchanges

6408

5687

5200

5400

5600

5800

6000

6200

6400

6600

2004 2005 2006 2007 2008 2009

Total No.Of Listed Companies

Source: WFE

Financial Markets Performance


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Financial Markets Performance

Investing in the BSE Sensex 25 years

Data source: ICRA MFIE

16.02%02%

Fixed investment on1st day of every month

16.90%

15.07%

Fixed investment athighest sensex value

every year

Fixed investment atlowest sensex value

every year

0

5000

10000

15000

20000

25000

9/ 15/ 1996 9/ 15/ 1998 9/ 15/ 2000 9/ 15/ 2002 9/15/ 2004 9/ 15/ 2006 9/ 15/ 2008



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Agenda

Financial Markets



Indian Capital Markets History, Exchanges & Performance

Regulator

Research


Outlook


Other Derivatives

Indian Financial Markets Other Derivatives


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Indian Financial Markets Other Derivatives

Commodity Futures

After much debate, commodity futures trading was permitted & exchanges were launched during 2003 -04

Begin with precious metals the domestic commodity exchange offerings extended to all possible commoditysegments a la BMs, Softs, Cash crops, Edible Oils, Pulses and Spices

Despite various regulatory hurdles the average volumes in the commodity exchanges continued to grow verystrongly - CAGR of 73.7 percent (INR 67.7 lakh crores) during 2004-2009

Indian commodity exchanges are monitored and controlled by FMC, Ministry of Consumer Affairs &

Agriculture ministry

Currency Futures

After commodity futures, regulatory authorities have launched currency futures during 2008-09

Started with single USD/INR pair now the currency futures are available in all major trading pairs likeINR/GBP, INR/EUR & INR/JPY

Unlike the commodity futures, that showed a steady participation Despite various regulatory hurdles the

average volumes in the commodity exchanges continued to grow very strongly

Indian currency futures are monitored by RBI & SEBI



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Agenda

Financial Markets




Other Derivatives

Research



Regulator


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Indian Financial Markets Research


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Indian Financial Markets Research

Others include derivative analysis (volume, OI and Put/Call ratio)

Top down approach tracking economy, sector and company long term investing

Bottom up approach company, balance sheet, peer group comparison and industry short term



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Agenda

Financial Markets



Other Derivatives

Regulator

Research



Outlook

Indian Financial Markets Funds Flow


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Indian Financial Markets Funds Flow

As indicated earlier the capital flows remainedstronger with FDI, FII and ECB turning positive

since Q1 - FY09-10

Though FDI and ECB remained below theprevious peaks the hot money FII scaled close

to the Sep07 highs

Until the matured economies signal rate hikethe capital flow remain intact thereby pushingthe benchmark indices higher

Foreign Direct Investme nts - Monthly

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Mar-06 Jan-07 Nov-07 Sep-08 Jul-09 May-10

FDI (M ln USD)

Source:RBI

Net Foreign Insti Investme nts Monthly

2000

1500

1000

500

0

500

1000

1500

2000

2500

3000


Net FII (M ln USD)

Source:RBI

External Comm ercial Barrowings - Monthly

0

1000

2000

3000

4000


ECB (M ln USD)

Source:RBI

Indian economy GDP & Other Estimates


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Indian economy GDP & Other Estimates

2008-09 2009-10 2010-11 F

Real GDP 6.70 7.40 8.30

IIP 2.75 10.3 10.8

WPI 8.46 3.17 6.50CPI 8.93 11.9 10.0

PLR 12.8 11.8 13.0

91-181 TB Yield 7.09 - 7.15 3.53 - 4.33 4.5 - 5.5

10 Yr G Sec Yield 7.6 7.2 8

Source: RBI, W2W Estimates

Generous rise in investments and emphasis on infrastructure led IIP growth bode well for the Indian growthmomentum move from cyclical to structural

However, normalizing GoI incentives, monetary policy amid muted private consumption expenditure may call

for moderation in the Q2 & Q3 of FY 2010-11

Steady progress of monsoon, revival in the job market amid steady up tick in interest rates are expected todrive the private consumption to pick up as the FY 2010-11 progress

Despite ease in Food inflation (largely statistical) pick up in demand, limited capacity in short term, firmcommodity prices globally expected to keep the inflation higher in the current cycle

Contagion of European crisis and untimely policy/inability to balance inflation/growth momentum are the

key risk to the above outlook

Indian GDP

9.6

9.0

6.7

7.4

8.3

2

4

6

8

10

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 E 2010-11 F

Source:RBI, W2W Estimates


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Thank you

Research Department

Premise A, 15th Floor, Chandramukhi Building, Backbay Reclamation,

Nariman Point (near Inox Theatre), MUMBAI : 400021

Phone: 022 4019 2900, Fax: 022 40192939

financial markets & investing_jul'10

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