January 2019 - Stocksbaazigar

Indian Stock Exchanges

30th January 2019 by stocksbaazigar

There are 28 official stock exchanges (SE) in India. The largest exchanges in India are Bombay Stock Exchange (BSE) and National Stock Exchange of India (NSE) Here are the names of others: Calcutta SE Cochin SE Inter-connected SE of India Multi-Commodity Exchange of India OTC Exchange of India Pune SE National Commodity and Derivative Exchange U.P. SE Vadodara SE Canara SE Ludhiana SE M.P. SE Coimbatore SE Madras SE Meerut SE Over the counter Exchange of India Ahmadabad SE Trivandrum SE Bangalore SE Bhubaneswar SE Delhi SE Guwahati SE Hyderabad SE Jaipur SE Magadh SE Largest Stock Exchanges of India 1) The Bombay Stock Exchange (BSE) It is located in Mumbai It was established in 1875 BSE was founded by Premchand Roychand. The BSE is the World’s 10th largest stock exchange Market Capitalization of BSE is more than $ 2.3 trillion on as of April 2018 5500 companies are listed on BSE Important Indices of Bombay Stock Exchange BSE SENSEX : The BSE SENSEX (also known as the S & P Bombay Stock Exchange Sensitive Index or simply SENSEX) is a free-float-market-weighted stock market index of 30 well- established and financially sound companies listed on Bombay Stock Exchange. Other: S & P BSE SmallCap ,S & P BSE MidCap ,S & P BSE LargeCap ,S & P BSE 500 2) The NATIONAL STOCK EXCHANGE OF INDIA (NSE) It is located in Mumbai It was established as the first demutualized electronic exchange in India in 1992 It is the world’s 11th-largest stock exchange Total Market Capitalization is more than $ 2.27 Trillion as of April 2018 1952 companies are listed on NSE Important Indices of NSE NIFTY 50 : The NIFTY 50 index is National Stock Exchange of India’s benchmark broad based stock market index for the Indian equity market. It represents the weighted average of 50 Indian stocks in 12 sectors. Other: NIFTY NEXT 50,NIFTY 500 Who regulates these exchanges? The Indian Capital Markets are regulated and monitored by the Ministry of Finance, The SEBI, and The Reserve Bank of India The Securities & Exchange Board of India (SEBI) is the regulatory authority established under the SEBI Act 1992 and is the Principal regulator for Stock Exchanges in India. SEBI’s primary functions include protecting investor interests, promoting and regulating the Indian securities markets.

Basics of Stock Exchange

30th January 2019 by stocksbaazigar

What is Stock Exchange? As per the Wikipedia, A stock exchange, security exchange or bourse, is a facility where stock brokers and traders can buy and sell securities, such as shares of stock and bonds and other financial instruments. Stock exchanges may also provide for facilities like the issue and redemption of such securities and instruments and capital events including the payment of income and dividends. Securities traded on a stock exchanges include stock issued by listed companies, unit trusts, derivatives, pooled investment products and bonds. What is the definition of Stock Exchange? As per the Securities Regulation Act, 1956 Stock Exchange is defined as any body of individuals, whether incorporated or not, constituted before corporatization and demutualization under Section 4A and 4B or a body corporate incorporated under the Companies Act, 1956 whether under a scheme of corporatization and demutualization or otherwise, For the purpose of assisting, regulating or controlling the business of buying, selling or dealing in Securities. What is corporatization and demutualization? Corporatization means the succession of the recognized stock exchange, being a body of individuals or a society registered under the Societies Registration Act, 1860, Article 21, by another stock exchange, being a company incorporated for the purpose of assisting in buying, selling and dealing in securities. Demutualization refers to the legal structure of an exchange whereby the ownership, the management and the trading rights at the exchange are segregated from one another. Features of Stock Exchange It is an organized Security market It is an association of individuals recognized by the Central Government Its membership is not open for everybody Only the members can deal in a stock exchange The Members can buy and sell securities as a broker for and on behalf of their clients The dealing in Stock exchange are under certain accepted code of conduct. It is an important constituent of Capital Market It deals in Second-hand securities Functions of Stock Exchange Continuous and ready market for Securities. Facilitates Evaluation of Securities Encourages Capital Formation Provides safety and security in dealings Regulates Company Management Facilitates Public Borrowings Provides clearing house facility Facilitates healthy speculation Serves as economic barometer Facilitates bank lending Services given by stock exchanges to: Investors Provides liquidity to Investment Provides Collateral Value to Securities Offers opportunity to participate in the economical growth Estimates the worth of securities Offers Safety in corporate investment Economy Brings Economic Development Forecasting the recession Companies Capital Gains and Fund Raising Widens market for securities Creates goodwill and reputation Facilitates fair pricing of listed securities Provides better response from investors Motivates Management of the companies Helps in proper Corporate Governance Encourage to complete documentations on time Facilitates quick selling of Securities

What is Secondary market?

30th January 201929th January 2019 by stocksbaazigar

Capital Markets can be divided into Primary Market and Secondary Market. Secondary market Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock exchange. It is also called as aftermarket. Majority of the trading is done in the secondary market. It comprises of Equity Markets and Debt Markets. What is the role of Secondary market? For the general investor, the secondary market provides an efficient platform for trading of his securities. For the management of the company, secondary equity markets serve as a monitoring and control conduit by facilitating value-enhancing control activities, enabling implementation of incentive-based management contracts, and aggregating information (via price discovery) that guides management decisions. Functions of the Secondary market Accuracy Function: Price accuracy can reduce the agency costs of management and make hostile takeovers a less risky proposition and thus move capital into the hands of better managers. Accurate share price aids the efficient allocation of debt finance whether debt offerings or institutional borrowings. Liquidity function: The greater the number of investors in the secondary market, more the liquid market. Continuous trading in after-market keeps it highly liquid. Price Discovery function: It provides the instant valuation of securities caused by the changes in the environment. Difference between Primary and Secondary markets Major Players in Secondary Market Brokerages and Advisory Services Commission Broker Jobber Floor Broker Taraniwalla/ Stag Odd lot dealer Budliwala Arbitrageur Security dealers Financial Intermediaries: Commercial Banks, Development Financial Institutions, Insurance Company, Mutual Funds, Non-banking Financial Companies (NBFC) Individual/ Retail Investors Major Instruments in Secondary Market Fixed Income Instruments: Bonds Debentures Term/Fixed Deposit Preference stock Mortgage backed of Asset backed securities Life Insurance Annuity Pension Plan Variable Income Instruments: Equity Derivative Hybrid Income Instruments: Mutual Fund Basket D (75% Equity + 25% loan) Convertible Preferential Share

What is ISIN?

28th January 201926th January 2019 by stocksbaazigar

Each of the securities dematerialized in the NSDL/CDSL depository bears a distinctive ISIN – an identification number. International Securities Identification Number (ISIN) is a unique identification number for each security issued in any of the International Standards Organization (ISO) member countries in accordance with the ISIN standard (ISO 6166). ISO 6166 was developed for use in an international (cross-border) as well as domestic trades. ISIN is a 12-character long identification mark. It has three components – a pre-fix, a basic number and a check digit. The pre-fix is a two letter country code as stated under ISO 3166 The number comprises nine alphanumeric characters (letter and/or digits).The check digit at the end of the ISIN is computed according to the modulus 10 “Double-Add-Double”. It establishes that the ISIN is valid. Securities issued by the same company, issued at different times or carrying different rights, terms, and conditions are considered different securities for the purpose of allocating ISIN and are allotted distinct ISINs.In India, SEBI assigns ISIN to various publicly traded securities. Different ISINs allocated to the physical and dematerialized securities of the same issue. To illustrate, ISIN INE 475c 01 012 has the following break up: IN – India E- Company Last digit (2 in this example) – check digit First four digits 475c – Company Serial Number; 01- Equity (it can be mutual fund units, debt or Government securities); 01 – issue number The third digit (E in the above example) may be E, F, A, B or 9. Each one carries the following meaning: E – Company F- Mutual Fund Unit A- Central Government Security B – State Government Security 9 – Equity Shares with rights which are different from equity shares bearing INE number. Whenever dealing with ISIN number, it is important to pay special attention to the third digit.

Rematerialisation Process

26th January 2019 by stocksbaazigar

What is re-materialization? Rematerialization is the exact reverse of dematerialization. It Refers to the process of issuing physical securities in place of securities held electronically in book-entry form in a depository. Under this process, the depository account of a beneficial owner is debited for the securities sought to be re-materialized and physical certificates for the equivalent number of securities is/are issued. Re-materialization Process 1.The DP should provide rematerialisation request forms (RRF) to clients 2. The client should complete RPF in all respects and submit it to the DP. 3. The DP should check RPF for validity, completeness and correctness. In particular, the following points should be checked There is sufficient free balance available in the client’s account to honor the re-materialization request. The name of client on RRF is exactly the same as that in the client account. In case of joint holding, the order of names appearing in RRF is the same as in the client’s account. Details like security type, face value, issuer’s name and lock-in status are filled-in correctly. The client has indicated his opinion to receive physical certificates either in jumbo lot for the entire quantity requested or in a market lot. Separate RRF is submitted for ‘free and locked-in securities’. Securities locked-in for a different reason; each ‘ISIN’ securities of different paid-up value; and each client account. RRF is signed by ‘the sole holder in case of single holding; all joint holders in case of joint holding, authorized signatories in the case of corporate accounts, constituted attorney in the case of NRI accounts. 4) If RRF is not found in order, the DP should return the RRF to the client for rectification. 5) If RRF is found in order the DP should accept RRF and issue an acknowledgement to the client. 6) DP should enter the re-materialization request in DPM. DPM will generate a remat request number (RRN) which should be mentioned on RRF. 7) An authorized person, other than one who entered the RRF details in DPM, should verify the details of RRN and release a request to the depository. 8) DP should complete the authorization of RRF and forward to the issuer or its R & T agent for re-materialization within seven days of accepting it from the client. 9) The issuer of its R & T agent should verify the RRF for validity, completeness and correctness. It should also match the details with the intimation received from the depository against the same RRN. 10) In case the issuer or its R & T agent finds RRF in order, it should confirm the remat request. The issuer or its R & T agent should then proceed to issue the physical security certificates and dispatch them to the beneficial owner. 11) The DP, on receiving confirmation of debit entry in DPM, should inform the client accordingly. The entire process takes a maximum of 30 days. No trading is possible on the securities sent for remat. This is the complete process of re-materialization of securities.

Dematerialization

25th January 2019 by stocksbaazigar

What is dematerialization? Dematerialization is the process of converting physical shares into an electronic form. Shares once converted into the dematerialized form are held in Demat account. India adopted the demat system successfully and there are plans to facilitate the trading of almost all financial assets in demat format in the future. Advantages of Dematerialization Share transactions like sale or purchase and transfer/transmission etc. can be effected in a much simpler and faster way. There is no risk due to loss on account of fire, theft or mutilation. There is no chance of bad delivery at the time of selling shares as there is no signature mismatch. Transaction costs are usually lower than that in the physical segment. The bonus /rights shares allotted to the investor will be immediately credited into his account. Time and money is saved as you are not dealing in paper now. You need not go to the notary, broker for taking delivery or submitting the share certificate Liquidity is very high in case of demat format as whole process in automated. Interest on loan against demat shares are less as compared to physical shares Investors save stamp duty while transferring shares in demat format. Securities that can be dematerialized According to the SEBI (Depositories and Participants) Regulations, 1996, the following securities are eligible for holding in demat form Shares, Scrips, Stocks, Bonds, Debentures, debenture stock or other marketable securities of similar nature of any incorporated company of body corporate including underlying shares of ADRs and GDRs Units of Mutual Funds, Rights under collective investment schemes and venture capital funds, commercial paper, certificate of deposit, securitized debt, money market instruments, and unlisted securities. Dematerialization Process (as per NSDL website) The client (registered owner) will submit a request to the DP in the ‘Dematerialization Request Form for dematerialization, along with the certificates of securities to be dematerialized. Before submission, the client has to deface the certificates by writing “SURRENDERED FOR DEMATERIALISATION”. The DP will verify that the form is duly filled in and the number of certificates, number of securities and the security type (equity, debenture etc.) are as given in the DRF. If the form and security count is in order, the DP will issue an acknowledgment slip duly signed and stamped, to the client. The DP will scrutinize the form and the certificates. This scrutiny involves the following Verification of Client’s signature on the dematerialization request with the specimen signature (the signature on the account opening form). If the signature differs, the DP should ensure the identity of the client. Compare the names on DRF and certificates with the client account, Paid up status, ISIN (International Securities Identification Number), Lock – in status, Distinctive numbers etc. In case the securities are not in order, they are returned to the client and acknowledgment is obtained. The DP will reject the request and return the DRF and certificates in case: A single DRF is used to dematerialize securities of more than one company. The certificates are mutilated, or they are defaced in such a way that the material information is not readable. It may advise the client to send the certificates to the Issuer/ R&T agent and get new securities issued in lieu thereof. Part of the certificates pertaining to a single DRF is partly paid-up; the DP will reject the request and return the DRF along with the certificates. The DP may advise the client to send separate requests for the fully paid-up and partly paid-up securities. Part of the certificates pertaining to a single DRF is locked-in, the DP will reject the request and return the DRF along with the certificates to the client. The DP may advise the client to send a separate request for the locked-in certificates. Also, certificates locked-in for different reasons should not be submitted together with a single DRF In case the securities are in order, the details of the request as mentioned in the form are entered in the DPM (software provided by NSDL to the DP) and a Dematerialization Request Number (DRN) will be generated by the system. The DRN so generated is entered in the space provided for the purpose in the dematerialization request form. A person other than the person who entered the data is expected to verify details recorded for the DRN. The request is then released by the DP which is forwarded electronically to DM (DM – Depository Module, NSDL’s software system) by DPM. The DM forwards the request to the Issuer/ R&T agent electronically. The DP will fill the relevant portion viz., the authorization portion of the demat request form. The DP will punch the certificates on the company name so that it does not destroy any material information on the certificate. The DP will then dispatch the certificates along with the request form and a covering letter to the Issuer/ R&T agent. The Issuer/ R&T agent confirms acceptance of the request for dematerialization in his system DPM (SHR) and the same will be forwarded to the DM if the request is found in order. The DM will electronically authorize the creation of appropriate credit balances in the client’s account. The DPM will credit the client’s account automatically. The DP must inform the client of the changes in the client’s account following the confirmation of the request. The issuer/ R&T may reject dematerialization request in some cases. The issuer or its R&T Agent will send an objection memo to the DP, with or without DRF and security certificates depending upon the reason for rejection. The DP/Investor has to remove reasons for objection within 15 days of receiving the objection memo. If the DP fails to remove the objections within 15 days, the issuer or its R&T Agent may reject the request and return DRF and accompanying certificates to the DP. The DP, if the client so requires, may generate a new dematerialization request and send the securities again to the issuer or its R&T Agent. No fresh request can be generated for the same securities until … Read more

How to open an account with Depository Participants?

25th January 2019 by stocksbaazigar

Any investor who wishes to avail depository services must first open an account with depository participants of NSDL and CDSL The investor can open an account with any depository participant of NSDL and CDSL. An Investor may open an account with several DPs or he may open several accounts with a single DP. The investor has the freedom to choose a DP based on criteria like convenience, comfort, service level, safety, reputation, and charges. After exercising the choice, the investor has to enter into an agreement with the DP. Types of accounts with DP Types of depository account depend on the operations to be performed. There are three types of demat accounts which can be opened with a depository participants wiz. 1. Beneficiary Account 2.Clearing Member Account 3.Intermediary Account A DP may be required to open three categories of accounts for clients – Beneficiary account, clearing member account and intermediary account. A beneficiary account is an ownership account. The holder/s of securities in this type of account own those securities. A Clearing Member Account and Intermediary Accounts are transitory accounts. The securities in these accounts are held for a commercial purpose only. A Clearing Member Account is opened by a Broker or a Clearing Member for the purpose of settlement of trades. An Intermediary account can be opened by a SEBI registered intermediary for the purpose of stock lending and borrowing. Documents for Verification For the purpose of verification, all investors have to submit the following documents along with the prescribed account opening form. Proof of Identity – A beneficiary account must be opened only after obtaining proof of identity of the applicant. The applicant’s signature and photograph must be authenticated by an existing account holder by the applicant’s bank or after due verification made with the original of the applicant’s valid passport, voter ID, driving license or PAN Card with a photograph Proof of Address – The account opening form should be supported with proof of address such as verified copies of ration card/ passport/ voter ID/ PAN card/driving license/ bank passbook. An authorized official of Participants, under his signature, shall verify the original documents. In case any account holder fails to produce the original documents for verification within the aforesaid period 0f 30 days, it must be immediately brought to the notice of NSDL. Failure to produce the original documents within the prescribed time would invite appropriate action against such account holder, which would even include the freezing of their accounts Client Types in Depository System There are several client types in the depository system and different codes are allotted to them. These are listed below. 1)Resident – Ordinary and HUF 2)Financial Institutions – Govt sponsored FI, State FCs, other 3)FIIs – Mauritius-based, Others 4)NRI –Repatriable, Non-Repatriable, Depository Receipts 5) Body Corporate – Domestic Company, Overseas Corporate Body, Repatriable, Govt company, Central Govt, State Govt, Co-operative body, NBFC, Non- NBFC, Broker, Foreign Bodies, Group companies, others, OCB – Non-repatriable, Depository Receipt 6) CM (Clearing Member) 7) Foreign National – Foreign National/Depository Receipt 8) Mutual Fund – Foreign National/ Depository Receipt 9) Trust 10) Bank – Foreign Bank, Co-operative bank, Nationalized bank, Other 11) Intermediary These are several client types in the depository system and different codes are allotted to them as above. No minimum balance is required for opening a depository account. After verifying the form and the documents DP opens the account of their clients.

Depository system of India

29th January 201925th January 2019 by stocksbaazigar

Background: The earlier settlement system on Indian stock exchanges was very inefficient as it was unable to take care of the transfer of securities in a quick/speedy manner. Since the securities were in the form of physical certificates; their quick movement was again difficult. This led to settlement delays, theft, forgery, mutilation, and bad deliveries and also to added costs. To wipeout these problems, the Depositories Act 1996 was passed. It was formed with the purpose of ensuring free transferability of securities with speed, accuracy & security. It has been able to do so by: Making securities of public limited companies freely transferable, subject to certain exceptions. Dematerializing the securities in the depository mode. Providing for maintenance of ownership records in a book entry form. What is Depository? A depository is an institution or a kind of organization which holds securities with it in De-Mat form. In this, trading is done among shares, debentures, mutual funds, derivatives, F&O, and commodities. It is a company that maintains a record of investors dematerialized, shareholding in individual accounts, which are known as the demat account. Depositories in India Fundamentally, there are two sorts of depositories in India. National Securities Depository Limited (NSDL) Central Depository Service (India) Limited (CDSL). These are regulated by SEBI and are governed by the Depositories Act, 1996 NSDL: National Securities Depository Limited (NSDL) is an Indian Central securities depository based in Mumbai. It was established on 8 November 1996 as the first electronic securities depository in India with national coverage. It was established based on a suggestion by a national institution responsible for the economic development of India . CDSL: The second depository Central Depository Services Limited (CDSL) has been promoted by Bombay Stock Exchange and Bank of India. It was formed in February 1999. Both depositories have a network of Depository participants (DPs) which are further electronically connected to their clients. So, DPs act as a link between the depositories and the clients. What are the Depository Participants? Depository Participant (DP) is described as an Agent (law) of the depository. They are the intermediaries between the depository and the investors. The relationship between the DPs and the depository is governed by an agreement made between the two under the Depositories Act. In a strictly legal sense, a DP is an entity who is registered as such with SEBI under the sub section 1A of Section 12 of the SEBI Act. Who can become Depository Participant? SEBI (D&P) Regulations, 1996 prescribe a minimum net worth of Rs. 50 lakh for stockbrokers, R&T agents and non-banking finance companies (NBFC), for granting them a certificate of registration to act as DPs. If a stockbroker seeks to act as a DP in more than one depository, he should comply with the specified net worth criterion separately for each such depository. No minimum net worth criterion has been prescribed for other categories of DPs; however, depositories can fix a higher net worth criterion for their DPs. Services provided by Depositories: Dematerialization (usually known as demat) is converting physical certificates of Securities to electronic form Rematerialisation, known as re-mat, is reverse of demat, i.e. getting physical certificates from the electronic securities. Transfer of securities, change of beneficial ownership Settlement of trades done on exchange connected to the Depository Pledging and Unpledging of Securities for the loan against shares Corporate action benefits directly transfer to the Demat and Bank account of the customer

Allotment Procedure in IPO

24th January 2019 by stocksbaazigar

There are different segments of Investors who invest in IPOs. The three important segments are Retail Investors, Qualified Institutional Buyers, and Non Institutional buyers. As per SEBI guidelines, there are a different set of allocation rules for different types of Book Building Issues. An issuer can issue securities to Investors in two ways: 100% book building and 75% book building (of the net offer to the public). We will see, these 3 important cases of allotment procedures below. Case 1: Issuer company makes an issue of 100% of the net offer to the public through 100% book building process. Allocation: Not less than 35% of the net offer to the public to Retail individual investor. Not less than 15% of the net offer to the public to NonInstitutional Investors i.e. investors other than retail individual investors and qualified institutional buyers. Not more than 50% of the net offer to the public to Qualified Institutional Buyer (out of which 5% to be specifically allocated to mutual funds) However 50% of net offer to the public shall be mandatory allotted to the qualified institutional buyers. Case 2: Issues made under Rule 19(2)(b) of Securities Contract Regulation, Rules 1957, with 60% mandatory allocation to Qualified Institutional Buyers (out of which 5% to be specifically allocated to mutual funds) Allocation: The percentage allocation to retail individual investors and non-institutional investors shall be 30% and 10% respectively. Case 3: CAn issuer company makes an issue of 75% of the net offer to public through book building process and 25% at the price determined through book building. Allocation: In the book built portion, not less than 25% the net offer to the public to non qualified institutional buyers. Not more than 50% of the net offer to the public to Qualified Institutional Buyer (out of which 5% to be specifically allocated to mutual funds) The balance 25% of the net offer to the public offered at a price determined through building to retail individual investors who either not participated or have not received allocation, in the book built portion.

Marketing Strategy for IPO

28th January 201924th January 2019 by stocksbaazigar

Marketing of IPO is very important to ensure 100% subscription of an IPO in all the segments. Marketing Strategy of IPO should be prepared by Marketing and PR team of the issuer with the Consultant having experience of Business-to-investor marketing. A wide spectrum of marketing tool should be used to achieve significant over-subscription from institutional as well as retail investors segment. The Road show In the road show a company and its underwriters transverse through the country as well as abroad. They conduct several meetings with potential investors; security analysis, brokers and potential underwriting syndicate members. Some of these meetings are one-to-one, but most are group meetings. The road show is most effective marketing tool for Institutional investors. The road show is conducted in the weeks immediately preceding the effectiveness and pricing of IPO, many indications of interest are placed immediately after a road show stop. The company’s story which may have been first told at the organizational meetings, which has been converted into an onscreen summary to be conveyed in 30 minutes or less to an astute and inquisitive audience can make or break an IPO. A successful road show typically, has a meaningful impact on the IPO price and on initial aftermarket trading Marketing strategy for retail investors Top 15 cities in India contribute more than 90% to the amount raised in IPOs. Therefore it is important to take press conferences in key cities. Advertisements in Newspapers, Business channels, and public relations campaign. Management interviews in print and electronic media. Broker conferences, press conferences etc. Site visit for key brokers across India. Sustained awareness program before SEBI observations, through corporate advertisement campaign. A good website and youtube channel having corporate videos, testimonials of customers etc. are important marketing tools. Marketing strategies for HNIs 25% of the Marketing budget of IPO goes in targeting High Net Worth Individuals (HNIs) of India and abroad. Initial contacts with High Net Worth Individuals (HNI) by Private Client Services (PCS) sales person Key HNI meet with the management Marketing strategies for qualified institutional investors. Develop equity story through research report Communicate equity story during pre-marketing where sector analysts interface with fund managers to discuss financials and answer preliminary questions Collate pre-marketing feedback and decide floor price Follow-up by senior salespersons to address investor queries Prepare senior personnel for management roadshows based on the interaction of the sector analyst and salespersons with fund managers. Finalize the management road show schedule to maximize investor coverage across investor geographies. One-on-one meetings and group functions with company management – video/telephone conferences in secondary cities as needed Regular interface by salespersons with fund managers to follow-up for bids.