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Sharemarket basics1. Debt vs Equity
2. OFCD3. How is SENSEX
calculated?4. Types of companies:
public ltd, pvt.ltd,PSU
Corporate scams:1. Sahara, NSEL, MCX,
Bhave CBI PE?2. regulatory sector-
reforms?
Corporate Tax1. Vodafone CGT
Transfer pricinNetherland BIPDTC, GAAR?
2. Nokia Royalty
India Finland DMicrosoft Deal
Todays Topics
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Share Market Basics
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Debt
Rs. 1000 @8%; 10 years Fixed income;Irrespective of profit
Bonds, debentures, loan,
ECB Creditor to company
First claim duringliquidation
Equity
Securities: Debt vs Equity
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Equity
*** % of shares 100%
Dividend from p
IPO, Shares, VC
Angel Investor Ownership Last claim durinliquidation
Securities: Debt vs Equity
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Debt =Interest Equity = Divid
Securities: Debt vs Equity
Slowdown Boom
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Optionally fully-convertible debentu(OFCD)
OFCD
Debenture Shares
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Company (Maalik)
Interest Paymentx Only profit share
No profit= no dividend
Higher profit=> Bdividend
Investor (Jun
OFCDDebenture Shares (E
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Debenture holders of a company ar
A.ShareholdersB.Directors
C.Debtors
D.Creditors
UPSC 2003
Right answer
1. Skip 2. Attempt 3. Mark n Rev
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SENSEX calculation?
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SENSEX calculation: 1979
30k with
Mallya
70k with
public
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Free float Market cap(FFMC)
=Price of each share xtotal # of shares withpublic.
=10 x 70,000
=7,00,000 Rs. (1stJan1986)
Shares with public (1986)
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Bull
Hopes that prices willrise,
Hence purchases.
Fears that pricesfall,
Hence sells.
Bear
Types of investors
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Free float Market cap(FFMC)
=Price of each share xtotal # of shares withpublic.
=2000 x 70,000
=14,00,00,000 Rs.(2014)
=14 crore. (2014)
Shares with public (2014)
BSE SENSEX F l
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(FFMC @Present / @base year) x 100
(@2014 /@1986) x 100
(14 Crore/ 7 lakh) x 100
20,000 = SENSEX
In real SENSEX: total FFMC of thirty
companies.
BSE-SENSEX Formula
BSE 30 i
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1. Axis Bank
2. Bajaj Auto
3. Bharat Heavy Electricals
4. Bharti Airtel5. Cipla
6. Coal India
7. Dr.Reddy's Laboratories
8. GAIL (India)
9. HDFC Bank
10. Hero MotoCorp
11. Hindalco Industries
12. Hindustan Unilever
13. HDFC
14. ICICI Bank
15. Infosys
1. ITC
2. Larsen & Toubro
3. Mahindra and Mahindra
4. Maruti Suzuki India5. NTPC
6. ONGC
7. Reliance Industries
8. Sesa Goa
9. State Bank of India
10. Sun Pharmaceutical Ind
11. Tata Consultancy Servic
12. Tata Motors
13. Tata Power Company
14. Tata Steel
15. Wipro
BSE-30 companies
BSE SENSEX F l
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Sensex =Sensitive + Index.
ASIA oldest: Bombay Stock Exchange(1875)
Worlds Oldest: Amsterdam Stock exch(1602) Netherlands
BSE-SENSEX Formula
D t i li ti DEMAT
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Paper share
delivery problem.
Fear of theft.
Transfer delay
Dematerialization (mid-90s)
Dematerialization: DEMAT
D t S t
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CSDL
NSDL
Depository
SBI
HDFC
ICICI
Dep.
Participant You
Cus
Demat System
Financial
inclusion
#PAN#DEMAT
T f i
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Company
Public Ltd
7-unlimiteMin.paidup 5
Private lt
2-50
1 lakh
Types of companies
Types of companies
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Company
Public Ltd.
Li
Vodafo
Un
NokPrivate ltd.
Types of companies
Public ltd Companies: Listed vs Unli
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Listed
Shares, IPO, Bonds,Debentures traded@Stock Exchange
Public offer/Issue=>SEBI
Offer OPEN Equity (IPO)=> 15-30days
Debt (Bond/OFCD)=> 3-10 days
Private offer (2=>Corporate Aff
SC: >50investors=>Pub
=> SEBI.
unlisted
Public ltd. Companies: Listed vs Unli
Infosys
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Infosys
Holding Vs Subsidiary
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Reliance
industries Ltd(Holding)
Delight protein
Ltd. (Subsidiary)
Gujarat Urja VNigam Ltd. (GU
(earstwhile GEGujarat StateElectricityCorporation Lim
(subsidiary)=>GNR, Kadana,Dhuvaran therplants
Holding Vs Subsidiary
PSU = RTI applies
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Governmentcompanies
ONGC, SAIL, Coal Indialtd.
Registered underCompanies Act
Government owns >50%
shares Majority BoD.
Employees Not publicGovt.
CAG appointed pvt.
auditors
LIC, Air India, IDBAct of Parliament /
Legislature
Wholly financed byGovernment
all BoD. Employees Not pu
Govt.
Directly by CAG (sexception)
Public Corpor
PSU = RTI applies
Dept undertaking =NOT PSU
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commercial activity such as engineering,manufacturing etc.
directly controlled by the government, jusany other department
Indian Railways, postal Department.not registered as companies under thecompanies act
Employees = Government servantDirectly CAGRTI applies.
Dept.undertaking =NOT PSU
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SEBI SaharaOFCD
2008-11: Game begins
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Sahara Housing Investment Corporatio(unlisted)
Sahara India Real Estate Corporation(unlisted)
Issue OFCDfor more than TWO Yea
10 days)>2 crore people (50 people)
>24,000 crores
2008-11: Game begins
Case begins
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SEBI (2011)
Stop OFCD Refund $$ + 15% interest Give proof of Refund Untraceable Account=>Govt.
SAT (2011)
Upheld SEBI order
SC (2012)
Upheld SEBI order
SAHARA
- Only refunded ~
- Refused to give (TRUCK)
- contempt
Case begins
Arguments
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SEBI act: All CIS,Except
1. Nidhi2. Chit Funds
3. Co-operatives
SAHARA argum
Unlisted compan
Under Corp. Affa
SEBI= only liste
Need time to Re
Arguments
MONEY LAUNDERING
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MONEY LAUNDERING
Before KYC norms (
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Before KYC norms (
2002 KYC
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REFUND??Untraceable
Only 5000 cr.
=to Govt.
SEBI Ordinance
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2013=> March 2014
Raid, attach,
Arrest for non-compliance
Fund gathered >100 Cr. = under SEBIinvestors, CIS
Fast track court, info.-exchange with foagencies
SEBI Ordinance
SEBI: a Brief History
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1992: Securities and Exchange board India (Statutory Body)
1999: Amendment- CIS brought under(Except Nidhi, Chit fund a and coopera2002: powers of search and seizure.2005: Patil Committee
SEBI = corporate bondRBI = Repo and Reverse repo(Government securities)
SEBI: a Brief History
cards
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PAN card
PAN: 10 digitalphanumeric number
By Income Taxdepartment
12 digit unique n By UniqueIdentification Auof India (UIDAI)
UID numbe
ca ds
cards
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PAN card
All residents Doesnt change withaddress
Same.
UID numbe
cards
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PAN card
No minimum /maximum age limit.
No biometric dataexcept photo.
~Rs100 fees
Less 3 years=>biometric infoX
Eye, photo, finge
No fees.
UID numbe
cards
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PAN card
individual, firm, jointventure
all residents and NRI
Only individual all residents and
UID numbe
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NSEL Crisis
1. What is commodity trading?
2. Why NSEL Crisis?
3. Steps taken?
4. Long term solution?
Commodity Market
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1. METAL: Aluminum, gold, silver
2. AGRI: castor seeds, cotton, wheat, basm
jeera3. ENERGY: Oil, coal
y
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2 Month Rent: Rs. 200
LOAN
T+1 = Rs. 1000/Qt.
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2 Month Rent: Rs. 200
T+35 = Rs. 1800/Qt.
T+35 = Rs. 1800/Qt.
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2 Month Rent: Rs. 200
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2 Month Rent: Rs. 200Broker
Investors
Collateral / GuaranteeT+35 ; T+45
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2 Month Rent: Rs. 200Broker
Investors
Profit
Collateral / Guarantee
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Broker
Investors
Profit
2Govt.
T+20
E-series
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Dematerialized form
Broker => warehouse receipt =>Contra
BrokerageNSEL commission: 2,000 Cr (2009) =lakh Cr. (2013)
July 2013
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Broker
Investors
Profit
FM
T+
Inflation, i
Crisis beings: July 2013
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FMC orders T+10
NSEL directed all brokers / investors to set
T+10 Brokers: Motilal Oswal, Indian Infoline => Rcrore.
>Rs.5000 crore contracts
>15000 Investors
Crisis : August 2013
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NSEL: weekly settlement of dues
Will auction from warehouses
Weekly Rs.100 Cr. (Auction) Total 5600 Cr.
Not enough stock, fake receipt
Steps Taken
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Government banned E-series system
FMC investigation
Arvind Mayaram Panel (PM) FMC (Consumer Affairs)=> Finance Ministr
IT Dept. => NSEL allied companies
Reforms necessary?
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FMC => give more teeth
Hand over to SEBI
CBI PE against Bhave
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CBI PE against BhaveMCX-SX
Jignesh Shah
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FTIL
NSEL
Commodity Exchange
NAFED
License
2008
MCX-S
Stock Exch
Currency
CBI Preliminary inquiry (PE)
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CB Bhave (2008-13) SEBI Chairman
KM Abraham: SEBI board member
2007: Jignesh Shah IT raid (MCX, FTI2008: Jignesh Shah (FTIL) applies for SX license (SEBI)
Finance ministry 2SEBIdont untilinvestigation over
August 08: Bhave (SEBI) gives license
Fit and Prop
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FIT and Proper
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SEBI
Insolvent Not Convicted
Character- reputation
.
IT Raid = Not Fproper
Jignesh Shah / MSX..dont.
CBI
1 NSE dominant pla er in C rrenc DerCB BhavesDefense
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1. NSE dominant player in Currency Der.2. BSE unable to compete3. Needed competition4. Wrote letter to IT about Status5. IT replied: no merit in case.6. SEBI legal team: no conviction7. NSEL crisis @FMC8. MCX-SX running separately.9. Character certi. From Vinod Rai, GK Pill10.PE inquiry should not be released in me
Future of MCX-SX?
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(FMC order): Jignesh +FTIL not fit & proper
to run any exchange SEBI ordered FTIL tosell shares of MCX-SX
SEBI can cancel
license.
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After thoughtsSEBI-Sahara-OFCD
NSEL Crisis
Delays
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Banking Finance SEBI) Insurance IRDA)
In house SCORES InhouseB.Om SEBI I.Om
Consumer
courtSAT
Consumer
court
C
Court Supreme court Court
6 i l t
Lack of coordination
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6 primary regulators
RBI, SEBI, IRDA, PFRDA, EPFO, and
NABARD, SIDBI, NHB are also involveregulation
6 Central ministries + State Govt.
Consumer courts also involved.Lack of coordination, loopholes
S C ( ) 11 13Nachiket Mor (R
Regulatory Reforms: Committees
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FSLRC (FinMin) 11-13Nachiket Mor (R
14
FSLRC: Present vs Future AgencieRBI
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RBIRBI
Debt Mgmt
SEBI
FMC
IRDA
PFRDA
UFA
SAT FSAT
FRA
Financial Redress Agenc (FRA)
Nachiket
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Financial Redress Agency (FRA)
For all six regulator RBI, SEBI, IRDA,
PFRDA, EPFO, and FMCFRA: not an individual
Board of directors
Powers of Consumer courtsSimilar body @State level:
MFI-NGO, Chit-fund, Local moneylend
Customer complaints against bank
Banking ombudsman
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Customer complaints against bank
From UK => India 1995
RBIs general managers => 3 years =>reappointment
Except J&K
Jurisdiction of BO?
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Loan giving
Only
upt
A
GuD
H
(B
1 Saradha Chitfund scam?Assignment
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1. Saradha Chitfund scam?2. Gujarat (Abhay Gandhi, Zahir Rana, As
Jadeda)? [Fin.inclusion, education?]
3. Jignesh Shah=> Ketan Parekh, HarshaMehta4. what lessons we learnt from these crisi5. what steps should be taken to avoid re
of such crisis in the future?6. Do you existing Indian laws and regula
are capable enough of handling such cthe future?
7. FMC should be merged with SEBI?