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					Financial Markets & Investing
                       July 2010




                Way2Wealth
making investing simpler, more understandable and profitable.
Indian Financial Markets

          Agenda

       Financial Markets – Rationale, Players & Structure
       Why and How to Invest in equity
       Indian Capita Markets - History, Exchanges & Performance
       Other Derivatives
       Regulator
       Research
       Outlook
  Financial Markets – Rationale & Players

                                   Economic System




   Surplus Money Generators                                Deficit Money Holders
            Households                                           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
Financial Markets – Broad Structure


                     Financial Assets represent a claim to the payment of a
                     sum of money sometime in the future and/or periodic
                     payment in the form of interest or dividend.

                     Provided resources needed by medium and large scale
                     industries/individuals

                     Purpose for these resources

                             Establishment of New Business
                             Expansion
                             Investments
                             Mergers and Acquisitions

                     Deals in both short term & long term instruments &
                     funds
                   Financial Markets – Global Snapshot
                                                                                                        Equity Markets - Em erging Econom ies
                         Equity Indices - Matured Econom ies                180
120
                                                                            160

                                                                            140

90                                                                          120

                                                                            100

                                                                            80

60                                                                          60
           Dow
           FTSE 100                                                         40
                                                                                       Sensex         Kospi
           CAC
           DAX                                                              20         Shanghai       Hangseng
           Nikkei 225                                                                   Bovespa        Russia
 30                                                                           0
 7/11/07           3/11/08           11/11/08           7/11/09   3/11/10     7/9/07            3/9/08            11/9/08            7/9/09     3/9/10
Source:Bloomberg                                                            Source:Bloomberg


       Firm commodities and return of the financials led FTSE score among the matured economies, closely followed
        by 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 signs
        of asset price inflation
       Late reaction on both fiscal and other policy let Russian equity to be the under performer among the emerging
        economies

            5
               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
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
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%
Indian Financial Markets

         Agenda

      Financial Markets – Rationale, Players and Structure
      What and How to Invest in Equity
      Indian Capital Markets - History, Exchanges & Performance
      Other Derivatives
      Regulator
      Research
      Opportunities & Challenges
      Outlook
     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




10
      Financial Markets – Concept Investing

What is Investing?
   Identifying and translating all the financial needs of an individual to monetarily
    measurable 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




 11
       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’ risk–return

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 (Children’s 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


  12
       Financial Markets – Concept Of Investing

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 not
   only 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




  13
              Financial Markets – Concept Of Investing
Rupee Cost Averaging

          Fluctuating Markets                     Declining Markets                     Rising Markets

 Systematic     Purchase         Units   Systematic     Purchase       Units   Systematic       Purchase       Units
  Investing       Price         bought    Investing       Price       bought    Investing         Price       bought
    100            20             5         100            25           4          100              5           20

    100            10             10        100            20           5         100              10          10

    100             5             20        100           12.5          8         100              20           5

    100            10             10        100            10           10        100              20           5

    100            20             5         100            5            20        100              25           4



    500            65             50        500          72.50          47        500             80           44

      Avg NAV : Rs 13.00 (65/5)             Avg. NAV : Rs 14.50 (72.50/5)        Avg. NAV : Rs 16.00 (80/5)
      Avg. Unit Cost : Rs 10.00             Avg. Unit Cost : Rs 10.64            Avg. Unit Cost : Rs 11.36
      (Rs 500/50)                           (Rs 500/47)                          (Rs 500/44)




      14
           Financial Markets – Concept Of Investing
Power Of Compounding - Rs 5000 invested per month

Rate of Return     Value at the end     Value at the end     Value at the end    Value at the end
                       of 3 yrs             of 5 yrs             of 10 yrs           of 15 yrs
     10%               2,08,909             3,87,185            10,24,225           20,72,352
     12%               2,15,384             4,08,348               11,50,193        24,97,901
     15%               2,25,578             4,42,873               13,76,085        33,42,534

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



    15
Indian Financial Markets

         Agenda
      Financial Markets – Rationale, Players and Structure

      Why and How to Invest in Equity
      Indian Capital Markets - History, Exchanges & Performance
      Other Derivatives
      Regulator
      Research
      Opportunities & Challenges
      Outlook
          Indian Financial Markets – History

History of Indian Stock Market
 From Scattered and small beginning in the 19th Century, India’s 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 1990’s
 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 Indian
  company stocks
 Although late than BSE, National Stocks Exchange is currently the leading stock exchange in India in terms of
  total volume traded
 Further liberalization India expected to see another one or two equity exchanges in the neat future
                  Indian Financial Markets – Growth
                          Indian Market Capitalization (m ln USD)                                   New Com panies Listed on Indian Exchanges
4000000                                                                          400

            Market Cap (m ln USD)                                                              New Com panies Listed       337
3500000                                                                          350

3000000                                                                          300

2500000                                                                          250

2000000                                                                          200

1500000                                                                          150

1000000                                                                          100                                                79            77
                                                                                        50                                                  36
 500000                                                                           50

     0                                                                            0
          2002    2003      2004     2005     2006      2007    2008   2009             2002      2003    2004    2005    2006     2007    2008   2009
Source: WFE                                                                      Source: WFE


                  Total No.of listed com pnaies on Indian Exchanges            Indian market capitalization has registered a CAGR
  6600
                                                                                of 39.7 percent during 2002-2009
            Total No.Of Listed Com panies                              6408
  6400
                                                                               Total listed companies in domestic exchanges
  6200                                                                          registered a CAGR of 2.4 percent during 2002-2009
  6000
                                                                               Total New companies listed each year on exchanges
  5800                                                                          registered a CAGR of 6.3 percent during 2002-2009
          5687
  5600                                                                         Globalization, increased domestic retail &
  5400
                                                                                institutional participation resulted this phenomenal
                                                                                growth
  5200
           2004          2005       2006         2007          2008    2009
  Source: WFE
            Financial Markets – Performance

Investing in the BSE Sensex – 25 years

     25000

                                                       16.90%
                                                                                    16.02%02%
     20000
                             15.07%


     15000




     10000



      5000




            0
          9/15/1996      9/15/1998    9/15/2000     9/15/2002   9/15/2004   9/15/2006   9/15/2008
                   Fixed investment at            Fixed investment at
                                                                             Fixed investment on
                   highest sensex value           lowest sensex value
                                                                            1st day of every month
                        every year                    every year




    Data source: ICRA MFIE

     19
Indian Financial Markets

          Agenda

       Financial Markets – Rationale, Players and Structure
       Why and How to Invest in Equity
       Indian Capital Markets – History, Exchanges & Performance
       Other Derivatives
       Regulator
       Research
       Opportunities & Challenges
       Outlook
         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 commodity
  segments a la BM’s, Softs, Cash crops, Edible Oils, Pulses and Spices
 Despite various regulatory hurdles the average volumes in the commodity exchanges continued to grow very
  strongly - 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 like
          ,
  INR/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
Indian Financial Markets

          Agenda

       Financial Markets – Rationale, Players and Structure
       Why and How to Invest in Equity
       Indian Capital Markets – History, Exchanges & Performance
       Other Derivatives
       Regulator
       Research
       Opportunities & Challenges
          Indian Financial Markets – Regulatory
SEBI – Securities and Exchange Board Of India
 Set up by Government of India in 1988, it acquired statutory form in 1992 with SEBI Act 1992

Functions and Responsibilities
Broadly, SEBI has to be responsive to the needs of various groups that are part of the financial market namely,
 The issuers of securities – Companies
 The investors – Retail, FII & Institutional
 The market intermediaries – Brokerage Houses

SEBI has three functions rolled into one body quasi-legislative, quasi-judicial and quasi-executive
     Legislative - Drafts regulations
     Executive - Investigation and Enforcement of Action
     Judicial – Pass various rulings and orders

  SEBI has enjoyed success as a regulator by pushing systemic reforms aggressively and successively (e.g. the
  quick movement towards making the markets electronic and paperless rolling settlement on T+2 basis). SEBI
  has been active in setting up the regulations as required under law
Indian Financial Markets

          Agenda

       Financial Markets – Rationale, Players and Structure
       Why and How to Invest in Equity
       Indian Capital Markets – History, Exchanges & Performance
       Other Derivatives
       Regulator
         Research
       Opportunities & Challenges
       Outlook
            Indian Financial Markets – Research




 Other’s 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
Indian Financial Markets

          Agenda

       Financial Markets – Rationale, Players and Structure
       Indian Capital Markets – History, Exchanges & Performance
       Other Derivatives
       Regulator
       Research
       Opportunities & Challenges
       Outlook
        Indian Financial Markets – Funds Flow
                                                                                                            Net Foreign Insti Investm ents Monthly
                         Foreign Direct Investm ents - Monthly
5000                                                                               3000
4500                                                                               2500      Net FII (M ln USD)
4000                                                                               2000
3500          FDI (M ln USD)
                                                                                   1500
3000                                                                               1000
2500                                                                               500
2000
                                                                                     0
1500
                                                                                   500
1000
                                                                                   1000
 500
                                                                                   1500
   0
                                                                                   2000 Source:RBI
  Mar-06           Jan-07         Nov-07         Sep-08          Jul-09   May-10
Source:RBI                                                                            Mar-06       Jan-07          Nov-07        Sep-08         Jul-09   May-10



                          External Com m ercial Barrow ings - Monthly                  As indicated earlier the capital flows remained
4000
                                                                                        stronger with FDI, FII and ECB turning positive
                                                                                        since Q1 - FY09-10
3000         ECB (M ln USD)
                                                                                       Though FDI and ECB remained below the
                                                                                        previous peaks the hot money FII scaled close
2000
                                                                                        to the Sep’07 highs
                                                                                       Until the matured economies signal rate hike
1000
                                                                                        the capital flow remain intact thereby pushing
                                                                                        the benchmark indices higher
   0
  Mar-06           Jan-07         Nov-07         Sep-08          Jul-09   May-10
Source:RBI




         27
          Indian economy – GDP & Other Estimates
                                    Indian GDP
                                                                                                          2008-09      2009-10      2010-11 F
10                          9.6
                                        9.0                                      Real GDP                     6.70       7.40         8.30
                                                                        8.3
                                                                                 IIP                          2.75       10.3         10.8
8                                                            7.4
                                                   6.7                           WPI                          8.46       3.17         6.50
6                                                                                CPI                          8.93       11.9         10.0
                                                                                 PLR                          12.8       11.8         13.0
4                                                                                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
2
     2004-05   2005-06    2006-07     2007-08    2008-09   2009-10 E 2010-11 F
                                                                                 Source: RBI, W2W Estimates
Source:RBI, W2W Estimates



      Generous rise in investments and emphasis on infrastructure led IIP growth bode well for the Indian growth
       momentum 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 to
       drive 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, firm
       commodity 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

         28
                      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

				
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