CAPITAL MARKET and Financial System in India Asheesh Pandey Assistant Professor of Finance, Jaipuria Institute of Management, NOIDA New Century Publications New Delhi, India
Contents About the Book.. Author 's Profile Preface vu viii.xv-xviii 1. Indian Economy: An Overview 1-23 1.1 Human Resources 1.2 Economic Flanning 1.3 Agriculture and Rural Development 1.4 Industry and Infrastructure 1.5 Fiscal Policy 1.6 Money, Credit and Prices 1.7 Financial Institutions and Financial Markets 1.8 Employment and Labour Weifare 1.9 Environmental Concerns 1.10 Foreign Trade 2. Financial Sector of India: Pre-Reforms Period 24-34 2.1 State Control of Financial Sector 2.2 Nationalisation of Imperial Bank of India (1955) 2.3 Nationalisation of Life Insurance Business (1956) 2.4 Nationalisation of Commercial Banks (1969 and 1980) 2.5 Nationalisation of General Insurance Business (1973) 2.6 Rethinking on State Domination of Financial Sector 2.7 Committee on Financial System, 1991 2.8 Approach to Financial Sector Reforms
X Capital Market and Financial System in India 3. Financial Sector of India: Post-reforms Period 35-54 3.1 Committee on the Financial System, 1991 3.2 Developing and Strengthening Financial Infrastructure 3.3 Financial Regulation and Supervision 3.4 Financial Openness 3.5 International Security Standards 3.6 Migration to Basel III Norms 3.7 Accounting and Auditing Standards 3.7.1 Marking-to-market 3.8 Technological Solutions for Financial Services 3.9 Legal Reforms for Strengthening Financial Sector 3.9.1 Recent Acts Enacted by the Parliament 3.9.2 Credit Information Companies (Regulation) Act, 2005 3.9.3 Government Securities Act, 2006 3.9.4 Payment and Settlement Systems Act, 2007 3.10 Committee on Financial Sector Reforms, 2008 3.11 Committee on Financial Sector Assessment (CFSA), 2009 3.12 Achievements of Financial Sector Reforms 3.13 Areas of Concern 4. Capital Market: Evolution and Present Structure 55-63 4.1 Capital Market: Meaning and Significance 4.2 Capital Market in the Pre-1991 Period 4.3 Securities and Exchange Board of India (SEBI) 4.3.1 Objectives 4.3.2 Powers and Functions
xii Capital Market and Financial System in India 6.5.2 Meaning of Derivatives 6.5.3 Reasons for the Popularity of Derivatives 6.6 Variants (or Types) of Derivative Contracts 6.6.1 Forwards/Forward Contracts 6.6.2 Futures/Future Contracts 6.6.3 Options 6.6.4 Swaps 6.6.5 Swaptions 6.7 Participants in the Derivatives Market 6.7.1 Hedgers 6.7.2 Speculators 6.7.3 Arbitrageurs 6.8 Economic Role of Derivatives 6.9 L.C. Gupta Committee on Derivatives Trading in India 6.9.1 Investor Protection 6.9.2 Derivative Products 6.9.3 Use of Derivatives by Mutual Funds 6.9.4 SEBI Related Issues 6.10 Amendment of Securities Contract Regulation Act 6.11 Measures to Protect the Rights of Investors in the Derivatives Market 6.12 Recent Developments in the Derivatives Market 7. Price Multiples: Review of Literature 100-110 7.1 Review of Literature for Matured Markets 7.2 Literature on Emerging Markets including India 8. Equity Valvation: Theoretical Framework 111-122 8.1 Concept of Valuation 8.2 Approaches to Valuation 8.2.1 Discounted Cash Flow Valuation (DCF)
Contents xiii 8.2.2 Contingent Claim Valuation 8.2.3 Technical Analysis 8.3 Relative Valuation 8.3.1 Reasons for Popularity 8.3.2 Drawbacks of Relative Valuation 8.3.3 Basic Steps in Relative Valuation 8.4 Prominent Price Multiples 8.4.1 Price Earnings Ratio 8.4.2 Book Value Multiples 8.4.3 Price to Sales Ratio 9. Integration of Financial Markets 123-137 9.1 Heterogeneous Nature of Financial Markets 9.2 Meaning of Financial Integration 9.3 Dimensions of Financial Market Integration 9.3.1 Domestic Financial Integration 9.3.2 Regional Financial Integration 9.3.3 Global Financial Integration 9.4 Measures of Financial Integration 9.5 Benefits and Risks of Financial Integration 9.5.1 Benefits 9.5.2 Risks 9.6 Need for Integration of Domestic Financial Markets 9.7 Measures Taken for Integration of Financial Markets 9.7.1 Free Pricing 9.7.2 Widening Participation 9.7.3 New Instruments 9.7.4 Institutional Measures 9.7.5 Technology, Payment and Settlement Infrastructure 9.8 Segment-wise Integration 9.8.1 Integration of the Government Securities Market 9.8.2 Integration of the Credit Market
Contents xi 4.3.3 Organisational Strengthening of SEBI 4.4 Summing Up 5. Capital Market Reforms 64-79 5.1 Trading Infrastructure in Stock Exchanges 5.2 Corporatisation and Demutualisation of Stock Exchanges 5.3 Depositoiy System, Dematerialisation (Demat) and Rematerialisation 5.3.1 Depository System 5.3.2 Dematerialisation (Demat) 5.3.3 Rematerialisation 5.4 Introduction of Free Pricing 5.5 Strengthening of Disclosure Norms 5.6 Tränsparency and Efficiency 5.7 Shortening of Settlement Cycle 5.8 Growth of Service Providers 5.9 Protection of Investors 5.10 Portfolio Investment Flows 6. Capital Market Instruments 80-99 6.1 Ordinary Shares 6.2 Preference Shares 6.3 Debentures 6.4 Types of Orders 6.4.1 Market Order 6.4.2 Limit Order 6.4.3 Stop-Loss Order 6.4.4 Stop-Limit Order 6.4.5 Fill or Kill Order 6.4.6 Market if Touched (MIT) 6.4.7 Good Till Cancelled (GTC) 6.4.8 Day Order or Good for the Day 6.5 Financial Derivatives 6.5.1 Emergence of Complex Financial Products
xii Capital Market and Financial System in India 6.5.2 Meaning of Derivatives 6.5.3 Reasons for the Popularity of Derivatives 6.6 Variants (or Types) of Derivative Contracts 6.6.1 Forwards/Forward Contracts 6.6.2 Futures/Future Contracts 6.6.3 Options 6.6.4 Swaps 6.6.5 Swaptions 6.7 Participants in the Derivatives Market 6.7.1 Hedgers 6.7.2 Speculators 6.7.3 Arbitrageurs 6.8 Economic Role of Derivatives 6.9 L.C. Gupta Committee on Derivatives Trading in India 6.9.1 Investor Protection 6.9.2 Derivative Products 6.9.3 Use of Derivatives by Mutual Funds 6.9.4 SEBI Related Issues 6.10 Amendment of Securities Contract Regulation Act 6.11 Measures to Protect the Rights of Investors in the Derivatives Market 6.12 Recent Developments in the Derivatives Market 7. Price Multiples: Review of Literature 100-110 7.1 Review of Literature for Matured Markets 7.2 Literature on Emerging Markets including India 8. Equity Valuation: Theoretical Framework 111-122 8.1 Concept of Valuation 8.2 Approaches to Valuation 8.2.1 Discounted Cash Flow Valuation (DCF)
Contents xiii 8.2.2 Contingent Claim Valuation 8.2.3 Technical Analysis 8.3 Relative Valuation 8.3.1 Reasons for Popularity 8.3.2 Drawbacks of Relative Valuation 8.3.3 Basic Steps in Relative Valuation 8.4 Prominent Price Multiples 8.4.1 Price Earnings Ratio 8.4.2 Book Value Multiples 8.4.3 Price to Sales Ratio 9. Integration of Financial Markets 123-137 9.1 Heterogeneous Nature of Financial Markets 9.2 Meaning of Financial Integration 9.3 Dimensions of Financial Market Integration 9.3.1 Domestic Financial Integration 9.3.2 Regional Financial Integration 9.3.3 Global Financial Integration 9.4 Measures of Financial Integration 9.5 Benefits and Risks of Financial Integration 9.5.1 Benefits 9.5.2 Risks 9.6 Need for Integration of Domestic Financial Markets 9.7 Measures Taken for Integration of Financial Markets 9.7.1 Free Pricing 9.7.2 Widening Participation 9.7.3 New Instruments 9.7.4 Institutional Measures 9.7.5 Technology, Payment and Settlement Infrastructure 9.8 Segment-wise Integration 9.8.1 Integration of the Government Securities Market 9.8.2 Integration of the Credit Market
xiv Capital Market and Financial System in India 9.8.3 Integration of the Foreign Exchange Market 9.8.4 Stock Market Integration 10. Capital Market and Global Financial Crisis 138-158 10.1 Causes of Global Financial Crisis 10.1.1 Global Macro Imbalances 10.1.2 Under-pricing of Risks 10.1.3 Loose Monetary Policy of US 10.1.4 Relaxation of Lending Standards 10.1.5 Regulatory Shortcomings 10.2 Severity and Impact of the Crisis 10.2.1 Impact on Global Capital Market 10.2.2 Impact on US Dollar 10.2.3 Impact on Equity Markets 10.3 World Level Remedial Measures 10.3.1 Bailout Packages 10.3.2 G-20 Decisions, April 2009 10.4 Impact of the Crisis on India 10.5 Remedial Measures Taken by the Government 10.5.1 Policy Response by RBI 10.5.2 Assessment of Policy Response Glossary of Capital Market Terms 159-198 Bibliography 199-208 Index 209-216