Indian equity markets: Indian equity markets have seen steady gains since the second half of October as the sentiment has improved on paradigm policy reforms initiated by Government of India, better than expected Q2 FY20 numbers of financials, good monsoons, rate cuts by all major economies including ours, and never-ending hope that ‘the U.S. & China can negotiate a trade deal’.
Corporate earnings: Corporate earnings for September quarter affirmed continued slow down. At operating level Nifty 50 EBITDA was down -2% whereas Ex-financials it was down a steep -18% Y/Y. Hope, being decent monsoons, lower interest rate trajectory, subdued commodity inflation, range-bound & manageable crude oil prices, healthy foreign exchange reserves, firm rupee, proactive government leaving no stone unturned to revive economy, paradigm tax reforms are reasons enough to revive the economy soon.
We expect long-lasting measures initiated by the government to start bearing fruits by CY20. We expect financials, FMCG, and infra stocks to positively surprise on earnings in H2FY20, while green shoots for automobiles seem to be round the corner. Traction in the Nifty 50 is likely to be led by expanding the EPS rather than PER multiples.
Equity market valuations: Risk-reward for equities for mid & small caps looks pretty attractive when compared to long-term averages. The premium between large caps and mid & small caps has narrowed. Cherry-picking can be done in cyclicals like financials, construction, consumer durables, and automobiles.
Equity outlook going forward: We remain constructive on equities and recommend to increase the allocation to equities in your portfolio. Valuation-wise, certain large-cap stocks look overvalued so a staggered shift from large to mid & small caps is recommended. The most important caveat being that quality based on a foreseeable earnings trajectory, clean balance sheet, and high pedigree of corporate governance should rein supreme in selection of investment ideas.
Monetary policy actions: The Reserve Bank of India (RBI) in its October policy cut policy rates by 25 bps to 5.15%. This was the fifth consecutive rate cut in CY2019, resulting in a cumulative cut of 135bps so far. While transmission has remained a challenge, it is gradually improving.
The US FOMC delivered one more rate cut of 25 bps as expected. Global bond yields of developed economies continue to remain low or in the negative zone. This may lead to a chase for sovereign assets of certain emerging economies, which are offering high real rates.
Policy rate outlook: We expect the pace of monetary stimulus to come down and that a combination of monetary and fiscal measures would be used to revive the economy. Markets expect the RBI to deliver another ~25 bps rate cut to revive consumption and investment activity, and be watchful on any fiscal slippages and any further deterioration of current account balance.
Overall economic environment remains conducive for the RBI to maintain its accommodative stance owing to factors like faltering growth, manageable inflation rate, and accommodative stance of global central banks.
Liquidity & bond rates: We expect liquidity to remain in the surplus zone, which bodes well for the shorter end of the yield curve. We continue to be positive on AAA-oriented funds as the risk-reward benefit is favorable in the 1 to 4 year segment of the yield curve and spread assets, as they provide better risk adjusted returns. Credit concerns and NBFC liquidity issues have kept the corporate bond spread at elevated levels.
Debt outlook from here: We believe that the investment opportunity in Corporate Bond Funds and banking and PSU funds looks attractive and Investors may look to invest in the funds depending on the scale of risk appetite and the investment horizon.
Disclaimer: This document has been prepared by IndiaNivesh Securities Limited (“INSL”), for use by the recipient as information only and is not for circulation or public distribution. INSL includes subsidiaries, group and associate companies, promoters, employees and affiliates. INSL researches, aggregates and faithfully reproduces information available in public domain and other sources, considered to be reliable and makes them available for the recipient, though its accuracy or completeness has not been verified by INSL independently and cannot be guaranteed. The third party research material included in this document does not represent the views of INSL and/or its officers, employees and the recipient must exercise independent judgement with regard to such content. This document has been published in accordance with the provisions of Regulation 18 of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. This document is not to be altered, transmitted, reproduced, copied, redistributed, uploaded or published or made available to others, in any form, in whole or in part, for any purpose without prior written permission from INSL. This document is solely for information purpose and should not to be construed as an offer to sell or the solicitation of an offer to buy any security. Recipients of this document should be aware that past performance is not necessarily a guide for future performance and price and value of investments can go up or down. The suitability or otherwise of any investments will depend upon the recipients particular circumstances. INSL does not take responsibility thereof. The research analysts of INSL have adhered to the code of conduct under Regulation 24 (2) of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. This document is based on technical and derivative analysis center on studying charts of a stock’s price movement, outstanding positions and trading volume, as opposed to focusing on a company’s fundamentals and, as such, may not match with a report on a company’s fundamentals. Nothing in this document constitutes investment, legal, accounting and/or tax advice or a representation that any investment or strategy is suitable or appropriate to recipients’ specific circumstances. INSL does not accept any responsibility or whatever nature for the information, assurances, statements and opinion given, made available or expressed herein or for any omission or for any liability arising from the use of this document. Opinions expressed are our current opinions as of the date appearing on this document only. The opinions are subject to change without any notice. INSL directors/employees and its clients may have holdings in the stocks mentioned in the document.
Posted by Mehul Kothari | Published on 15-NOV-2019
In Q2FY20, the Nifty 50 reported revenue de-growth of -3% and net profit de-growth of -10% on YoY basis. The prudent way of analysing Q2FY20 numbers would be to look at the top line and operating profit numbers, which paint a dismal picture. EBITDA slipped by -2% on YoY basis. The key takeaways were as follows: (1) banks and financials reported better numbers, (2) net profit was boosted by tax write-backs (many companies availed of the lower tax rate in accordance with the new tax structure), (3) de-growth in revenue and operating profit continues, and (4) Bharti Airtel dragged the profits down by around Rs. 23,045 crore. Ex-financial aggregates are even more alarming where revenue dropped by -4% and operating profit witnessed a decline of -18% YoY.Next 150 stocks by market capitalisationThe story was no different outside the Nifty 50. A study of the next 134 out of the 150 stocks by market capitalisation that have reported earnings so far shows that Q2FY20 revenue de-grew by -2% and operating profit declined by -5%. At net profit level, the companies reported a loss of Rs. 22,561 crore, primarily on account of Vodafone Idea’s net loss of Rs. 50,922 crore. The outliers were financials, while Airlines, Refiners, Metals, Vodafone Idea and IDBI Bank were key draggers. Here, the fall in operating profit of ex-financials being -55% was far more severe than overall. In general, financials, cement and pharmaceuticals (Ex-Lupin and Cadila) saw some positive traction in revenue and profitability.Next 300 stocks by market capitalisation (outside the top 200 basket)The favourable low base, migration to a new tax structure (lower rate), and better numbers of PSU banks helped this basket post positive growth numbers on all counts for the second consecutive quarter. In Q2FY20, revenue grew by 2%, operating profit by 16% and net profit by 74%. Q2FY20 aggregatesOur take: Decent monsoons, lower interest rate trajectory, subdued commodity inflation, range-bound & manageable crude oil prices, healthy foreign exchange reserves, firm rupee, proactive government leaving no stone unturned to revive economy, paradigm tax reforms are reasons enough to revive the economy soon. We expect long-lasting measures initiated by the government will start bearing fruits by CY20. We expect financials, FMCG, and infra stocks to positively surprise on earnings in H2FY20, while green shoots for automobiles seems round the corner. Traction in the Nifty 50 is likely to be led by expanding EPS rather than PER multiples. Going forward, corrections are likely to be bought till the roll out of Budget 2020, the caveat being an unprecedented global event.
Disclaimer: This document has been prepared by IndiaNivesh Securities Limited (“INSL”), for use by the recipient as information only and is not for circulation or public distribution. INSL includes subsidiaries, group and associate companies, promoters, employees and affiliates. INSL researches, aggregates and faithfully reproduces information available in public domain and other sources, considered to be reliable and makes them available for the recipient, though its accuracy or completeness has not been verified by INSL independently and cannot be guaranteed. The third party research material included in this document does not represent the views of INSL and/or its officers, employees and the recipient must exercise independent judgement with regard to such content. This document has been published in accordance with the provisions of Regulation 18 of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. This document is not to be altered, transmitted, reproduced, copied, redistributed, uploaded or published or made available to others, in any form, in whole or in part, for any purpose without prior written permission from INSL. This document is solely for information purpose and should not to be construed as an offer to sell or the solicitation of an offer to buy any security. Recipients of this document should be aware that past performance is not necessarily a guide for future performance and price and value of investments can go up or down. The suitability or otherwise of any investments will depend upon the recipients particular circumstances. INSL does not take responsibility thereof. The research analysts of INSL have adhered to the code of conduct under Regulation 24 (2) of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. This document is based on technical and derivative analysis center on studying charts of a stock’s price movement, outstanding positions and trading volume, as opposed to focusing on a company’s fundamentals and, as such, may not match with a report on a company’s fundamentals. Nothing in this document constitutes investment, legal, accounting and/or tax advice or a representation that any investment or strategy is suitable or appropriate to recipients’ specific circumstances. INSL does not accept any responsibility or whatever nature for the information, assurances, statements and opinion given, made available or expressed herein or for any omission or for any liability arising from the use of this document. Opinions expressed are our current opinions as of the date appearing on this document only. The opinions are subject to change without any notice. INSL directors/employees and its clients may have holdings in the stocks mentioned in the document.This report is based / focused on fundamentals of the Company and forward-looking statements as such, may not match with a report on a company’s technical analysis reportEach of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Dharmesh KantFollowing table contains the disclosure of interest in order to adhere to utmost transparency in the matter:
INSL, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. This information is subject to change, as per applicable law, without any prior notice. INSL reserves the right to make modifications and alternations to this statement, as may be required, from time to time. Research Analyst has not served as an officer, director or employee of Subject CompanyOne year Price history of the daily closing price of the securities covered in this note is available at www.nseindia.com and www.economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose name of company in the list browse companies and select 1 year in icon YTD in the price chartIndiaNivesh Securities LimitedResearch Analyst SEBI Registration No. INH000000511Corporate Office: Lodha Supremus, 17th Floor, Senapati Bapat Marg, Lower Parel (West), Mumbai - 400 013.Registered Office: 601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai - 400 007.Tel (Board): 022 6240 6240 | Fax: 022 6240 6241e-mail: research@indianivesh.in | Website: www.indianivesh.in)
Posted by Mehul Kothari | Published on 20-NOV-2019
We all know how various companies and industries raise funds for their short term requirement through the money market. However, when they need funds for long term, capital market is their source. The capital market is just like the money market but with a difference that funds raised in the capital market can be used only for long term. In this article, you will learn about the concept of capital market in detail.
Let us first understand what is the capital market?
Understanding Capital Market
Capital market in simple words means the market for long term investments. These investments have a lock-in period of more than one year. Here, the buyers and sellers transact in capital market instruments like bonds, debt instruments, debentures, shares, derivative market instruments like swaps, ETFs, futures, options, etc.
Let us now understand the types of capital market.
Types of Capital Market
The capital market is of two types i.e. Primary Market and Secondary Market.
Primary Market
The primary market is also called “New Issue Market” where a company brings Initial Public Offer (IPO) to get itself listed on the stock exchange for the first time. In the primary market, the mobilisation of funds is done through right issue, private placement and prospectus. The funds collected by the company in the IPO is used for its future expansion and growth. Primary markets help the investors to put their savings into companies that are looking to expand their enterprises.
Secondary Market
The secondary market is a type of capital market where the securities that are already listed on the exchange are traded. The trading done on the stock exchange and over the counter falls under the secondary market. Examples of secondary markets in India are National Stock Exchange (NSE) and Bombay Stock Exchange (BSE).
After learning about the types of capital market, let us now learn about the capital market instruments through which money is raised.
Ways of Raising Funds
Offer through Prospectus
In the primary market, the prospectus is used to raise funds. The company invites the investors and the general public through an advertisement known as the prospectus to subscribe to the shares of the company. The shares or debentures are allotted to the public on the basis of subscription. If the company receives a high subscription then allotment is done to them on pro-rata basis. The company hires merchant bankers, brokers or underwriters to sell the shares to the public.
Private Placement
Some companies try to avoid the IPO route to raise funds as it is very costly. Instead, they give investment opportunity to few individuals via private placement. Here the companies can offer their shares for sale to select individuals, financial institutions, insurance companies and banks. This way they can raise funds quickly and economically.
Rights Issue
The structure of capital market allows the companies in need of additional funds to first approach their current investors before looking at the other sources for finance. The right issue gives the current investors the first opportunity to make additional investments in the company. The allotment of right shares is done on pro-rata basis. However, if the current shareholders of the company do not want to exercise their rights, the shares can be offered to the public.
e-IPO
e-IPO means Electronic Initial Public Offer. e-IPO is an agreement between the stock exchange and the company to offer its shares to the public through online mode. It is a fast and speedy process. The company here needs to appoint registrar to the issue and brokers to accept the application received from the public.
The above mentioned are the ways of raising funds through the capital market. Let us now learn about the various functions of the capital market.
Functions of the Capital Market
Helps in the movement of capital from the people who save money to the people who are in need of it.
Assists in the financing of long term projects of the companies.
Encourages investors to own the range of productive assets.
Minimises the transaction cost.
Helps in the faster valuation of financial securities like debentures and shares.
Creates liquidity in the market by facilitating the trading of securities in the secondary market.
Offers cover against price or market risks through the trading of derivative instruments.
Helps in efficient capital allocation by way of competitive price mechanism.
Helps in liquidity creation and regulation of funds.
The above mentioned are the functions of the capital market. The capital market performs its functions with the help of buyers and sellers who interact and transact. The structure of the Indian capital market is well regulated and highly organised. The capital markets may be sometimes termed risky because they do not give fixed returns annually. But when looked from a long term perspective, their performance has always been good and rewarding for the investors. If you want to learn more about the capital market or put your savings in the capital market, you can contact IndiaNivesh Ltd.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing.")
Monthly Market Outlook – November 2019
Indian equity markets:
Indian equity markets have seen steady gains since the second half of October as the sentiment has improved on paradigm policy reforms initiated by Government of India, better than expected Q2 FY20 numbers of financials, good monsoons, rate cuts by all major economies including ours, and never-ending hope that ‘the U.S. & China can negotiate a trade deal’.
Corporate earnings:
Corporate earnings for September quarter affirmed continued slow down. At operating level Nifty 50 EBITDA was down -2% whereas Ex-financials it was down a steep -18% Y/Y. Hope, being decent monsoons, lower interest rate trajectory, subdued commodity inflation, range-bound & manageable crude oil prices, healthy foreign exchange reserves, firm rupee, proactive government leaving no stone unturned to revive economy, paradigm tax reforms are reasons enough to revive the economy soon.
We expect long-lasting measures initiated by the government to start bearing fruits by CY20. We expect financials, FMCG, and infra stocks to positively surprise on earnings in H2FY20, while green shoots for automobiles seem to be round the corner. Traction in the Nifty 50 is likely to be led by expanding the EPS rather than PER multiples.
Equity market valuations:
Risk-reward for equities for mid & small caps looks pretty attractive when compared to long-term averages. The premium between large caps and mid & small caps has narrowed. Cherry-picking can be done in cyclicals like financials, construction, consumer durables, and automobiles.
Equity outlook going forward: We remain constructive on equities and recommend to increase the allocation to equities in your portfolio. Valuation-wise, certain large-cap stocks look overvalued so a staggered shift from large to mid & small caps is recommended. The most important caveat being that quality based on a foreseeable earnings trajectory, clean balance sheet, and high pedigree of corporate governance should rein supreme in selection of investment ideas.
Monetary policy actions:
The Reserve Bank of India (RBI) in its October policy cut policy rates by 25 bps to 5.15%. This was the fifth consecutive rate cut in CY2019, resulting in a cumulative cut of 135bps so far. While transmission has remained a challenge, it is gradually improving.
The US FOMC delivered one more rate cut of 25 bps as expected. Global bond yields of developed economies continue to remain low or in the negative zone. This may lead to a chase for sovereign assets of certain emerging economies, which are offering high real rates.
Policy rate outlook:
We expect the pace of monetary stimulus to come down and that a combination of monetary and fiscal measures would be used to revive the economy. Markets expect the RBI to deliver another ~25 bps rate cut to revive consumption and investment activity, and be watchful on any fiscal slippages and any further deterioration of current account balance.
Liquidity & bond rates:Overall economic environment remains conducive for the RBI to maintain its accommodative stance owing to factors like faltering growth, manageable inflation rate, and accommodative stance of global central banks.
We expect liquidity to remain in the surplus zone, which bodes well for the shorter end of the yield curve. We continue to be positive on AAA-oriented funds as the risk-reward benefit is favorable in the 1 to 4 year segment of the yield curve and spread assets, as they provide better risk adjusted returns. Credit concerns and NBFC liquidity issues have kept the corporate bond spread at elevated levels.
Debt outlook from here:
We believe that the investment opportunity in Corporate Bond Funds and banking and PSU funds looks attractive and Investors may look to invest in the funds depending on the scale of risk appetite and the investment horizon.
Disclaimer: This document has been prepared by IndiaNivesh Securities Limited (“INSL”), for use by the recipient as information only and is not for circulation or public distribution. INSL includes subsidiaries, group and associate companies, promoters, employees and affiliates. INSL researches, aggregates and faithfully reproduces information available in public domain and other sources, considered to be reliable and makes them available for the recipient, though its accuracy or completeness has not been verified by INSL independently and cannot be guaranteed. The third party research material included in this document does not represent the views of INSL and/or its officers, employees and the recipient must exercise independent judgement with regard to such content. This document has been published in accordance with the provisions of Regulation 18 of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. This document is not to be altered, transmitted, reproduced, copied, redistributed, uploaded or published or made available to others, in any form, in whole or in part, for any purpose without prior written permission from INSL. This document is solely for information purpose and should not to be construed as an offer to sell or the solicitation of an offer to buy any security. Recipients of this document should be aware that past performance is not necessarily a guide for future performance and price and value of investments can go up or down. The suitability or otherwise of any investments will depend upon the recipients particular circumstances. INSL does not take responsibility thereof. The research analysts of INSL have adhered to the code of conduct under Regulation 24 (2) of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. This document is based on technical and derivative analysis center on studying charts of a stock’s price movement, outstanding positions and trading volume, as opposed to focusing on a company’s fundamentals and, as such, may not match with a report on a company’s fundamentals. Nothing in this document constitutes investment, legal, accounting and/or tax advice or a representation that any investment or strategy is suitable or appropriate to recipients’ specific circumstances. INSL does not accept any responsibility or whatever nature for the information, assurances, statements and opinion given, made available or expressed herein or for any omission or for any liability arising from the use of this document. Opinions expressed are our current opinions as of the date appearing on this document only. The opinions are subject to change without any notice. INSL directors/employees and its clients may have holdings in the stocks mentioned in the document.
Previous Story
Nifty 50 – Q2 FY20 Earnings Aggregate Key Highlights
In Q2FY20, the Nifty 50 reported revenue de-growth of -3% and net profit de-growth of -10% on YoY basis. The prudent way of analysing Q2FY20 numbers would be to look at the top line and operating profit numbers, which paint a dismal picture. EBITDA slipped by -2% on YoY basis. The key takeaways were as follows: (1) banks and financials reported better numbers, (2) net profit was boosted by tax write-backs (many companies availed of the lower tax rate in accordance with the new tax structure), (3) de-growth in revenue and operating profit continues, and (4) Bharti Airtel dragged the profits down by around Rs. 23,045 crore. Ex-financial aggregates are even more alarming where revenue dropped by -4% and operating profit witnessed a decline of -18% YoY.Next 150 stocks by market capitalisationThe story was no different outside the Nifty 50. A study of the next 134 out of the 150 stocks by market capitalisation that have reported earnings so far shows that Q2FY20 revenue de-grew by -2% and operating profit declined by -5%. At net profit level, the companies reported a loss of Rs. 22,561 crore, primarily on account of Vodafone Idea’s net loss of Rs. 50,922 crore. The outliers were financials, while Airlines, Refiners, Metals, Vodafone Idea and IDBI Bank were key draggers. Here, the fall in operating profit of ex-financials being -55% was far more severe than overall. In general, financials, cement and pharmaceuticals (Ex-Lupin and Cadila) saw some positive traction in revenue and profitability.Next 300 stocks by market capitalisation (outside the top 200 basket)The favourable low base, migration to a new tax structure (lower rate), and better numbers of PSU banks helped this basket post positive growth numbers on all counts for the second consecutive quarter. In Q2FY20, revenue grew by 2%, operating profit by 16% and net profit by 74%. Q2FY20 aggregatesOur take: Decent monsoons, lower interest rate trajectory, subdued commodity inflation, range-bound & manageable crude oil prices, healthy foreign exchange reserves, firm rupee, proactive government leaving no stone unturned to revive economy, paradigm tax reforms are reasons enough to revive the economy soon. We expect long-lasting measures initiated by the government will start bearing fruits by CY20. We expect financials, FMCG, and infra stocks to positively surprise on earnings in H2FY20, while green shoots for automobiles seems round the corner. Traction in the Nifty 50 is likely to be led by expanding EPS rather than PER multiples. Going forward, corrections are likely to be bought till the roll out of Budget 2020, the caveat being an unprecedented global event. Disclaimer: This document has been prepared by IndiaNivesh Securities Limited (“INSL”), for use by the recipient as information only and is not for circulation or public distribution. INSL includes subsidiaries, group and associate companies, promoters, employees and affiliates. INSL researches, aggregates and faithfully reproduces information available in public domain and other sources, considered to be reliable and makes them available for the recipient, though its accuracy or completeness has not been verified by INSL independently and cannot be guaranteed. The third party research material included in this document does not represent the views of INSL and/or its officers, employees and the recipient must exercise independent judgement with regard to such content. This document has been published in accordance with the provisions of Regulation 18 of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. This document is not to be altered, transmitted, reproduced, copied, redistributed, uploaded or published or made available to others, in any form, in whole or in part, for any purpose without prior written permission from INSL. This document is solely for information purpose and should not to be construed as an offer to sell or the solicitation of an offer to buy any security. Recipients of this document should be aware that past performance is not necessarily a guide for future performance and price and value of investments can go up or down. The suitability or otherwise of any investments will depend upon the recipients particular circumstances. INSL does not take responsibility thereof. The research analysts of INSL have adhered to the code of conduct under Regulation 24 (2) of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014. This document is based on technical and derivative analysis center on studying charts of a stock’s price movement, outstanding positions and trading volume, as opposed to focusing on a company’s fundamentals and, as such, may not match with a report on a company’s fundamentals. Nothing in this document constitutes investment, legal, accounting and/or tax advice or a representation that any investment or strategy is suitable or appropriate to recipients’ specific circumstances. INSL does not accept any responsibility or whatever nature for the information, assurances, statements and opinion given, made available or expressed herein or for any omission or for any liability arising from the use of this document. Opinions expressed are our current opinions as of the date appearing on this document only. The opinions are subject to change without any notice. INSL directors/employees and its clients may have holdings in the stocks mentioned in the document.This report is based / focused on fundamentals of the Company and forward-looking statements as such, may not match with a report on a company’s technical analysis reportEach of the analysts named below hereby certifies that, with respect to each subject company and its securities for which the analyst is responsible in this report, (1) all of the views expressed in this report accurately reflect his or her personal views about the subject companies and securities, and (2) no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report: Dharmesh KantFollowing table contains the disclosure of interest in order to adhere to utmost transparency in the matter: INSL, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. This information is subject to change, as per applicable law, without any prior notice. INSL reserves the right to make modifications and alternations to this statement, as may be required, from time to time. Research Analyst has not served as an officer, director or employee of Subject CompanyOne year Price history of the daily closing price of the securities covered in this note is available at www.nseindia.com and www.economictimes.indiatimes.com/markets/stocks/stock-quotes. (Choose name of company in the list browse companies and select 1 year in icon YTD in the price chartIndiaNivesh Securities LimitedResearch Analyst SEBI Registration No. INH000000511Corporate Office: Lodha Supremus, 17th Floor, Senapati Bapat Marg, Lower Parel (West), Mumbai - 400 013.Registered Office: 601 & 602, Sukh Sagar, N. S. Patkar Marg, Girgaum Chowpatty, Mumbai - 400 007.Tel (Board): 022 6240 6240 | Fax: 022 6240 6241e-mail: research@indianivesh.in | Website: www.indianivesh.in)
Next Story
Capital Market – Meaning, Types & Functions of Capital Market
We all know how various companies and industries raise funds for their short term requirement through the money market. However, when they need funds for long term, capital market is their source. The capital market is just like the money market but with a difference that funds raised in the capital market can be used only for long term. In this article, you will learn about the concept of capital market in detail. Let us first understand what is the capital market? Understanding Capital Market Capital market in simple words means the market for long term investments. These investments have a lock-in period of more than one year. Here, the buyers and sellers transact in capital market instruments like bonds, debt instruments, debentures, shares, derivative market instruments like swaps, ETFs, futures, options, etc. Let us now understand the types of capital market. Types of Capital Market The capital market is of two types i.e. Primary Market and Secondary Market. Primary Market The primary market is also called “New Issue Market” where a company brings Initial Public Offer (IPO) to get itself listed on the stock exchange for the first time. In the primary market, the mobilisation of funds is done through right issue, private placement and prospectus. The funds collected by the company in the IPO is used for its future expansion and growth. Primary markets help the investors to put their savings into companies that are looking to expand their enterprises. Secondary Market The secondary market is a type of capital market where the securities that are already listed on the exchange are traded. The trading done on the stock exchange and over the counter falls under the secondary market. Examples of secondary markets in India are National Stock Exchange (NSE) and Bombay Stock Exchange (BSE). After learning about the types of capital market, let us now learn about the capital market instruments through which money is raised. Ways of Raising Funds Offer through Prospectus In the primary market, the prospectus is used to raise funds. The company invites the investors and the general public through an advertisement known as the prospectus to subscribe to the shares of the company. The shares or debentures are allotted to the public on the basis of subscription. If the company receives a high subscription then allotment is done to them on pro-rata basis. The company hires merchant bankers, brokers or underwriters to sell the shares to the public. Private Placement Some companies try to avoid the IPO route to raise funds as it is very costly. Instead, they give investment opportunity to few individuals via private placement. Here the companies can offer their shares for sale to select individuals, financial institutions, insurance companies and banks. This way they can raise funds quickly and economically. Rights Issue The structure of capital market allows the companies in need of additional funds to first approach their current investors before looking at the other sources for finance. The right issue gives the current investors the first opportunity to make additional investments in the company. The allotment of right shares is done on pro-rata basis. However, if the current shareholders of the company do not want to exercise their rights, the shares can be offered to the public. e-IPO e-IPO means Electronic Initial Public Offer. e-IPO is an agreement between the stock exchange and the company to offer its shares to the public through online mode. It is a fast and speedy process. The company here needs to appoint registrar to the issue and brokers to accept the application received from the public. The above mentioned are the ways of raising funds through the capital market. Let us now learn about the various functions of the capital market. Functions of the Capital Market Helps in the movement of capital from the people who save money to the people who are in need of it. Assists in the financing of long term projects of the companies. Encourages investors to own the range of productive assets. Minimises the transaction cost. Helps in the faster valuation of financial securities like debentures and shares. Creates liquidity in the market by facilitating the trading of securities in the secondary market. Offers cover against price or market risks through the trading of derivative instruments. Helps in efficient capital allocation by way of competitive price mechanism. Helps in liquidity creation and regulation of funds. The above mentioned are the functions of the capital market. The capital market performs its functions with the help of buyers and sellers who interact and transact. The structure of the Indian capital market is well regulated and highly organised. The capital markets may be sometimes termed risky because they do not give fixed returns annually. But when looked from a long term perspective, their performance has always been good and rewarding for the investors. If you want to learn more about the capital market or put your savings in the capital market, you can contact IndiaNivesh Ltd.Disclaimer: "Investment in securities market and Mutual Funds are subject to market risks, read all the related documents carefully before investing.")