Capital Market Practice in India
SECTOR OVERVIEW 2007-08
In the preceding year, correction in a bullish market subsequently followed by bear market rallies was never apprehended to result in a widespread pessimism. Indian stock markets have really been on doldrums and is still trying to achieve a optimal and stable position. However, the apparent crisis has not stopped significant industrial sectors of Corporate India showing growth. The well said idiom “ Necessity is the mother of Invention” has significantly manipulated the key players of Indian capital market to innovate new financial instruments, investment strategies and alike. In the last year, Indian companies have used American Depository Receipts (ADRs), Overseas listing on AIM, SGX, LSE, etc, Global Depository Receipts (GDRs), Convertible Alternative Reference Securities (CARs), Foreign Currency Exchangeable Bonds (FCEBs) and Qualified Institutional Placements (QIPs).
Its Is not only SEBI who has contributed to the development of innovating by increasing the scope and application of its regulations, but other regulatory bodies like RBI, FIPB, etc have made significant contributions . With liberalization of FDI & ECB Policies, FII investments in the capital markets, which began in January 1993, increased from USD 1 million at end-March 1993 to USD 66.6 billion at end-March 2008. In addition, venture capitalists invested around USD 928 million in 80 deals for entrepreneurial companies in India in 2007. This was a 166 per cent increase over the USD349 million invested in 36 deals in 2006 – easily the highest total on record for the region.
Capital Market Practice
With Investment Bankers and Merchant Bankers trying to handle the crisis, the other key player who makes significant productive contributions to the capital market scenario such that subsequent investments do not generate suboptimal returns are the Capital Market Lawyers. However, law firms have not just worked on innovating new forms of financial instruments, instruments. A new arm of capital market practice better known as structured finance has become the bread and butter of many law firms who have advised clients on securitization, project finance, leveraged or management buy outs, etc. Capital market transactions involving corporate restructuring like takeovers, acquisitions, mergers and demergers buy back of securities, incorporation of mutual funds and venture capital funds, acting as advisers while for issuers, financial institutions and intermediaries such as stock brokers, underwriters, merchant bankers, portfolio managers and investors also form a chunk of the work of the firms committed in capital market practice.
...f-regulate? A reasonable case for increased regulation can be made given the massive cost of recent financial turmoil and attorneys’ ostensible role in these crises. Moreover, as lawyers effectively operate as gatekeepers and rubberstamps for much of business decsionmaking, they may serve as the most efficient risk bearer to reduce externalized costs, whether through a division of ethical responsibilities between in-house attorneys and independent firms or simply staying the drastic course of Lawson. This modification of the role of attorneys does present a difficult contradiction as the exact value added by lawyers is leveraged into a social duty and it’s not obvious whether the two can co-exist. Given the relative lack of traction and progress, however, it seems the stickiness of established behavior may present too much value, for attorneys and clients alike.
...S$1 billion from private equity funds in the year to March 2012. In a market as large as India, that is still far from impressive, but incoming capital is expected to rise in the following year. If it does, it will represent a significant turnaround for a market that foreign private equity investors have largely shunned since the onset of the global financial crisis. Risks associated with Indian real estate investment are considerable, however. As one interviewee puts it, “It’s like China, but more complex in every possible way, without the infrastructure.” Bureaucracy, ubiquitous delays, land acquisition scandals, and an ongoing national protest movement targeting corruption have all contributed to waning foreign interest in Indian markets, with foreign direct investment and portfolio investment dropping markedly despite economic growth of about 8 percent in 2011.
There is requirement of government intervention to avoid market failure, but unsuccessful current public intervention, which can only be remedied with higher volume of early stage Venture Capital.
One can ask a question – why do we need structured finance? There are several reasons for
The forced liquidation of some $3 trillion in private label structured assets has been deprived from the financial markets and the U.S. economy has obtained a vast amount of liquidity that the banking system simply cannot restore. It is not as easy to just assign blame within these case however it is noted that the credit rating agencies unethical decisions practices helped add onto the financial crisis of 2008 and took into account the company’s well-being before any other stakeholders.
[9] Stephen A. Ross, Randolph W. Westerfield, Jeffrey F.Jaffe and Bradford D. Jordan. Modern Financial Management, pp. 307-309;341.
Corporate finance is all about management sources of fund which are separated into two, debt and outside equity. When the firm is solely funded by equity, high cost of capital, or by debt, financial distress or bankruptcy cost, the firm will not reach the optimal capital structure. The combination of debt and equity, trade-off capital structure, should be used and the matter of agency costs must be reduced to maximise value of the firm. The trade-off between tax benefit and bankruptcy cost has already been discussed as if the firm’s debt usage becomes high enough, the marginal increase in the tax shield will be less than the marginal increase in the bankruptcy cost. Agency costs consist of monitoring costs to observe the firm 's executives by shareholders, management 's bonding costs to assure owners that their best interests maximisation value of the firm, and residual losses that result even when sufficient monitoring and bonding exists. Adding additional debt reduces agency costs to equity holders because the manager can buy out outside equity using debt financing as the leverage effectively shifts some agency costs to
Foreign banks began to reduce their holding in Indian Equities which leads to decline in stock price and weakening the currency. Since majority IT firms derive their revenue from US economy, thereby IT enabled services significantly hit by subprime crisis. In addition, coming recession in US has led to decline in demand for exports hence cause loss in export earning of India as well as cause unemployment or loss of
The raw returns for different time gaps considered is calculated by taking closing prices of the given stock after the specified time gap (i.e., listing day, one month, three months and five months) from the offer price. This return on IPO has been computed as the difference between the closing price on the specified date and the offer price, divided by the offer price. The scrip has given positive returns to its investors since its listing day, the returns are showing a declining trend and this can be attributed to the fact that the market itself was falling down during that period. When the return estimated using the above equation has been adjusted using the returns on the CNX S&P Nifty Index for the corresponding period, it can be seen that the scrip has performed much better than the market since the market adjusted returns have increased compared to the raw returns. This shows that the scrip as such has been performing well in the
There are a few things that should be known about India before business is conducted there. The social and cultural standards are one thing that’s different. There are also differences in the political and legal systems, economical systems, and managerial systems. Some of the differences are obvious, while others are qualities that a representative or individual should be aware of before conducting business in the area.
A Company’s policy generally is to have different types of investors for their securities. Therefore, a capital structure should give enough choice to all kind of investors to invest. Usually bold and adventurous investors go for equity shares and loans & debentures are often raised keeping into mind conscious
Bond and stock both belong to negotiable securities, although both have their own characteristics. Bond and stock as a member of the securities system, which is a fictitious capital, they are no actual value, but they are the representatives of the real capital. Holding bond and stock are likely to obtain revenues. Also, bond and stock are the means of financing, compared with indirect financing such as bank loans, issuance of bonds and stock financing are large, long-term, low-cost, and not subject to the conditions of the lending bank. But, the mutual effect of yield from a single bond and stock, their yields are often differences and sometimes there such a big gap. However, if the market is effective, the average interest rate of the bond and the average return rate of the stock will generally remain relatively stable relationship, the difference reflects the degree of risk difference between the two. Looking with dynamic, the rate of return of the stock and prices and bond’s interest rates and prices are affect each other, often in the securities market with the movement in the same direction, for example, when the stock goes up then the bond will be going up too, but not exactly same range. These are the relationship between stock and
Machiraju, H. R. , 2002. International Financial Markets And India. 1st ed. New Delhi: New Age International.
The capital structure of a firm is the way in which it decides to finance its operations from various funds, comprising debt, such as bonds and outstanding loans, and equity, including stock and retained earnings. In the long term, firms seek to find the optimal debt-equity ratio. This essay will explore the advantages and disadvantages of different capital structure mixes, and consider whether this has any relevance to firm value in theory and in reality.
Indian economy is full of investment opportunities that need to be explored to earn profits. To grab the opportunities, one of the platforms is provided by stock market.