09-11-2012, 11:49 AM
ANALYSIS OF VARIOUS PRODUCTS OF COMMODITY MARKET
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INTRODUCTION TO THE INDUSTRY:-
FUNCTIONS OF BROKING INDUSTRY:
• improving the investment climate by allowing foreign institutional investors to invest in equity and debt markets
• expanding the product range offered by the stock exchanges
• strengthening the role and scope of capital markets regulation
• revival of commodities futures markets
• allowing Indian companies to issues ADRs and GDRs in international exchanges and enable them to raise resources through Euro Commercial Borrowings
• divestment of government ownership in state owned companies and financial institutions
• tax reforms in the form of introduction of transaction tax that streamlined the tax mobilisation from securities markets operations and also facilitated investors, a choice of tax options in the form of choosing either long term gains tax or short term tax which ever they prefer and subscribe to
• strengthening of institutional framework in primary and secondary markets
• reform and restructuring of the state owned assets management companies
• allowing Indian companies and individuals to invest abroad
• allowing stronger banks to assume greater exposure in the securities markets
• Setting up a mechanism for promoting corporate bond trading in stock exchanges etc.
Reforms in the industry:-
A new phase of securities market regulation in India began with the setting up of Securities and Exchange Board of India in 1992. Over the period, the Board has brought in several changes in the way securities markets are organized and conducted in India. Major reforms that were brought in the
Indian securities markets since 1992 are summarized below:
• Nation wide network of trading terminals
• Electronic Trading and abolition of Open Outcry systems
• Dematerialisation of Shares
• Foreign Participation in Domestic Brokerage Business
• Foreign Institutional Investment in Indian stocks
• Venture capital
• Book Building Process for IPOs
• Investor protection guidelines
• Dual Fungibility of ADRs/GDRs
• Delisting Guidelines
• Corporate Governance and Disclosure Standards
• Take Over Code
• Insider Trading
• VAR based margining
• T+2 Securities Settlement
• Straight Through Processing
• Screen based trading of Government Securities
• Introduction of Equity Derivatives
• Exchange Traded Market for Corporate Bonds
• Central Listing Authority
• Mutual Funds in the private sector
• Mutual Fund Investments Abroad>
• Demutualization and Corporatisation of Stock Exchanges
• Margin Trading
• Exchange Traded Funds
• Anti-Money Laundering Guidelines
• Electronic Data Information Filing and Retrieval (EDIFAR)
• Integrated market surveillance
Markets
In tune with the global stock markets that began to recover from the second half of 2003; Indian stock markets too witnessed rapid growth. India’s two leading indices, the most popular BSE Sensex, and the one most used by the markets the National Stock Exchanges’ S&P CNX Nifty rose to record levels. Both primary and secondary market activity experienced sharp surge. Much progress was made in further strengthening and streamlining risk management, market regulation and supervision. A few aspects of the major developments in the India’s stock markets are described below.
Market Structure
Indian securities market is fairly large as compared to several other emerging markets. There are 22 stock exchanges in the country, though the entire liquidity is shared between the country’s two national level exchanges namely, the National Stock Exchange of India and the Bombay Stock Exchange Ltd. The regional stock exchanges are in pursuit of business models that make them viable and vibrant. Meanwhile, these exchanges have become members of the national level exchanges through formation of subsidiaries whose business is showing continuous growth and progress.
Major aspects of business
A brief description of the major aspects of market developments in India with particular reference to NSE and BSE are summarized below. In view of the need for consistent and comparative data on a wide range of aspects, information published in official publications that is available latest for the FY06 are used in the following write up.
Market Capitalisation
Market capitalisation of stocks in India rose from Rs 67.50 bn in 1980 to Rs 705.21 bn in 1990 to Rs 11,926.30 bn in 2000. BSE market capitalisation as of mid-2007 is about Rs 40,000 bn, which in the background of the appreciating rupee, takes it to among the small group of exchanges with a trillion dollar market cap. Market capitalisation as percent of gross domestic product which was about 25% in the early 2000s, now equals it. Several leading emerging economies have market capitalization as a multiple of GDP, and in the manner in which stock prices are appreciating in India, the prospects for Indian market capitalisation rising further look good. Information for the tables in this chapter is sourced from the handbook published by the Securities and Exchange Board of India and the websites of the Bombay Stock Exchange Ltd, and the National Stock Exchange of India Ltd.
Trading Volumes
Secondary market operations gained greater momentum in the last decade. In the last ten years, the value of trading in both NSE and BSE rose six times making the Indian stock markets the leading market in the Asian region, and is also remarkable as compared to the growth in the world equity markets. During the period FY96 and FY06, value of share trading at the National Stock Exchange rose from Rs 657.42 bn to Rs 15,168.39 bn and at BSE from Rs 500.64 bn to Rs 8,160.74 bn. An important end in the volumes is the trading of a large number of small and midcap stocks as could be evidenced from the sharp rise in the number of scrips traded at BSE, in which a major chunk of these companies are listed. Average number of transactions rose 5 times at the NSE and about 4 times at the BSE in the last ten years, thus indicating a strong surge in stock market operations as also predominance of retail investing. The entry of foreign institutional investment has brought in a cumulative investment of USD45 bn since the time markets were opened for foreign investing in FY93 till the end of FY06.