Informative Lecture On `Understanding Role Of Capital Markets’

An extremely informative guest lecture was organized for the students of Economics on 31st January 2020 by Mr Sunil B Kapadia from BSE Brokers Forum on `Understanding Role Of Capital Markets’. It was conducted for MBA Finance and Economics students.

The lecture in Smart Room, Management Block, CIML, Lavasa began with an analysis of the basics of investing with specific reference to equity shares. He rightly said that equity shares are a source of `Wealth Creation’. He stated that from 1979 to 2016 the CAGR (Compounded Annual Growth Rate) return was 16.5 %. There is no tax if shares are held for more than 1 year but if sold for less than one year then 15 % short term capital gains tax is levied.

 He further spoke about primary market with specific reference to IPO (Initial Public Offering). In this case the company goes to public for the first time to raise money. He clarified that IPO market is also known as primary market. To reiterate his point he gave an example of Coal India. Mr Kapadia informed the students why companies raise capital through IPO route and stated that money raised through IPO is ownership money, it need not be returned to shareholders unless the company closes down, no interest is to be paid on this amount and no mortgage of property is required on this amount. He further elaborated the IPO process with specific reference to a case study.

It was quite enlightening to know how trading of shares take place. He explained the entire process which begins once trading and demat accounts are opened. Then the client will call the broker or sub broker and tell his trading code in which the transaction has to be kept. Once the transaction is done, the broker or sub broker will give confirmation to the client about the trades done. Mr Sunil mentioned about two types of trading namely intraday trading and delivery based trading. He distinguished between them by stating that intraday trading refers to a transaction in one day itself be it buying or selling whereas in intraday, the profit or loss is settled by the way of difference only.

He moved on to explain essential knowledge required for share investment in economic or industrial scenario. The highlight of the lecture was an account of important takeaways from the entire process. The students were informed that Indian stock market has created huge wealth, CAGR return of BSE Sensex since 1979 to 2015 is 16.5%, long term investment only pays and not trading, wealth can be created by investing on a monthly basis over a long period of time and above all in order to be rich one needs discipline investment and not one time investment.

Mr Kapadia also spoke at length about quantitative analysis for rating purpose which included information pertaining to detailed analysis of profit and loss and balance sheet, few important and relevant ratio analysis, fund flow and cash flow analysis, product’s share in the market and future prospects and the current market share of the company in the industry it belongs to.

He also briefed them about qualitative analysis which dealt with management outlook, background of promoters, educational qualification of key persons, domain knowledge of business, bank references and above all past credit and track record.

The guest lecturer further elaborated understanding the role of Capital Markets with specific reference to its objectives. He elucidated the main functions of capital markets, evolution and journey of capital markets in India, regulatory guidance in the development of capital markets, participants in capital markets, present scenario and status of capital markets in India and future expectations from capital markets.

He further explained the functions of capital market as it provides a platform for efficient use of financial resources from those who save to those who offer a better risk-adjusted return / appreciation over time. He also mentioned quite categorically how efficient allocation of resources is achieved on the basis of information obtained from (secondary market operations). He further added how it influences significantly (at times) the quality of investment decisions. (E.g. Reallocation of temporary capital that are inefficiently or insufficiently used) by favoring some sectoral reorganizations. It is believed that well run liquid markets plays an important role in supporting economic development of a country, both at the macroeconomic and microeconomic levels.

At this juncture he elaborated the dimension/purpose of capital market and articulated that it helps in the capital formation of the country and Mobilization and import of foreign capital (FDI) and foreign investment capital (FII) that helps to fill up the deficit. It maintains active trading and enables directing the flow of funds to high yields and strives for balanced and diversified industrialization.

Mr Sunil gave an overview about evolution and journey of capital markets in India and regulatory role in the development of capital markets and gave detailed information about Macroeconomics for financial markets. The highly informative lecture ended with an interactive question answer session.

The entire guest lecture was coordinated by Ginish Cheruparambil PhD, Department of Economics, CHRIST (Deemed to be University), Lavasa.