Transcript Pros and Cons of Capital Market

Investors’ Awareness
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Orderly growth of the capital market began with setting
up of the Stock Exchange, Mumbai in July 1875 and
Ahmedabad Stock exchange in 1894 and 22 other
exchange in various cities over the years.
Open market reforms – Eliminated license quota &
Golden Quadrilateral project, Indian Economy grew at a
rapid pace.
As a result of these major reforms, today the economy
of India is the tenth-largest in the world by nominal
GDP at $ 1.87 trillion and the third-largest by
purchasing power parity (PPP) at $ 5.07 trillion.
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The FDI inflows had aggregated to $24.29 billion in
2013-14 as against $ 22.42 billion in 2012-13. Today
India and China are considered as most attractive FDI
destinations in the world.
Turnover - The total amount of equity issues mobilised
in the Primary market stood at 15,474 crore in 2012-13
as against 12,857 crore in 2011-12.
While in Secondary market, In FY 2012-13 a total of
5211 companies were listed in BSE with a market
capitalization of Rs. 63,87,887/- crore and 1666
companies were listed in NSE with a market
capitalization of Rs. 62.39,035/- crore.
The trading in Secondary Market includes majority in
Equity with 76%, Currency Derivative – 17%, Cash
segment - 6% and Corporate Bonds – 1%.
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India would require around $1 trillion in the next five
years to overhaul its infrastructure sector, including
ports, airports and highways to boost growth.
During the budget, the fiscal deficit of India is
estimated at 4.1% of GDP at Rs. 5,31,000/- crore in
2014-15.
High food Inflation, Land Acquisition issues, shortage of
coal for power supply, weak monsoon significantly pose
challenges before Indian economy.
In this scenario, government feels appropriate to use
PPP model and invite FDI in various sectors to boost
growth.
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Investor Awareness is required because there
are many number of investment schemes
available in the market. Recently, many Ponzi
and fake investment schemes have been
witnessed in the markets which have resulted
in erosion of funds of millions of gullible
investors.
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Ponzi Scheme:- Receiving money/deposit from one
set of investors and paying back to another set of
investors. Eventually, following may be witnessed
in a Ponzi scheme:The promoter vanishes, taking all the remaining
investment money;
The scheme collapses as the promoter starts
having problems paying the promised returns .
Pyramid Scheme:- The organization promises its
new members a share of the money taken from
every additional member that they recruit. Such
organizations seldom involve sales of products or
services with real value.
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Investor Awareness is a term used in investor
relations, by public companies and similar bodies,
to describe how well their investors, and the
investment market in general, know their business.
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Areas of Investor Awareness include:◦ Relating to Primary Market
◦ Relating to Secondary Market
◦ Relating to Mutual funds
◦ Relating to shares and debenture holders
◦ Relating to Corporate Restructuring
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The Securities Transactions in India at present are
mainly governed by three Acts:The Securities Contracts (Regulation) Act, 1956: Enacted to prevent undesirable transactions in
securities and to regulate the working of stock
exchanges in the country.
The Securities & Exchange Board of India Act,
1992: Protects the interests of investors in securities.
The Depositories Act, 1996:Enacted to pave the way for smooth and free
transfer of securities in a dematerialized form.
Contd….
The other relevant laws which affect the capital
market are:1. The Foreign Exchange Management Act, 1999;
2. Arbitration and Conciliation Act, 1996;
3. Companies Act, 2013;
4. Debt Recovery Act (Bank and Financial
Institutions Recovery of Dues Act, 1993);
5. Banking Regulation Act; 1949
6. Benami Prohibition Act;
7. Indian Penal Code; 1860.
8. Indian Evidence Act, 1872.
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Abnormally high 'guaranteed' returns
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High initial investment
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Vague/complicated investment strategy
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Unsustainable business model
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Offers of exclusivity and paying back of losses
FRAUD COMPANY
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Sells
cheap
GENUINE COMPANY
and
low-quality
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Sells quality products
products
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Entry cost high
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Easy earnings, mostly depend on
•
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the number of new recruits
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Commissions
recruits;
come
negligible
from
payout
new
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by
are
performance-
Remuneration comes from the
company
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No refund or exit policy
Earnings
based
companies
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Entry cost reasonable
Members can exit as and when
they want.
Do’s and Don’ts:
A. Do’s:
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Avail nomination for all your investments without
fail
Convert your physical certificates in to demat form
by opening demat a/c
Provide your PAN card details in case of transfer /
transmission of shares in physical form
Keep track of your investments on regular basis
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Be alert to any public announcements on the shares
of the companies that you have invested
Be aware that an intermediary or its staff making a
recommendation, is required to disclose their
interest/ position in that scrip
Read the Annual Report and enclosed explanatory
statements, if any, before attending General
Meetings
In case of any grievance, contact the compliance
officer of the company /
Debenture Trustee (DT)
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Be aware that listed companies, Registrar and Share
Transfer Agents (RTA) and DTs are required to have
a dedicated Email ID for registering your
complaints
Approach SEBI, if grievance is not redressed by the
Company / DT
Be aware that investor complaints against listed
companies are displayed on the website(s) of SE
Be aware that the details of disposal of arbitration
proceedings are displayed on the website(s) of SE
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Do not invest with borrowed money
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Do not expect unrealistic / guaranteed returns
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Do not be influenced by advertisement / advices /
rumours / unauthentic news promising unrealistic
gains and windfall profits in mass media
Do not be guided by astrological predictions on
share prices and market movements
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Do not fall prey to market rumours / ‘hot tips’/
‘opportunity knocks only once’ kind of advice
Do not be swayed by market sentiments
Do not invest on any explicit / implicit promises
made by anyone
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Do not indulge in impulse investing
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Do not associate in any way with grey market
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Rights as a Equity shareholder
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Rights as a holder of debt Instrument
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Common responsibilities
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Chapter IV covering sections 43-72 states the
provisions regarding shares and debentures which
are as under:If a company with intent to defraud issues a
duplicate certificate of shares, the company shall
be punishable with fine which shall not be less than
five times the face value of the shares involved in
the issue of the duplicate certificate but which may
extend to ten times the face value of such shares
or rupees ten crores whichever is higher and every
officer of the company who is in default shall be
liable for action under section 447. (Section 46)
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The conditions under which the preference
shareholders can vote on every resolution placed
before meeting of shareholders has been changed.
Now preference shareholders can only exercise such
voting rights when dividends payable in respect of a
class of preference shares are in arrears for a period
of 2 years or more. There is no distinction between
cumulative and non cumulative preference shares.
(Section 47)
If the variation of one class of shareholders affects
the rights of any other class of shareholders the
consent of ¾ of that class should also
obtained.(Section 48)
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Such class of companies as may be prescribed
cannot utilize securities premium for in writing off
the preliminary expenses, for providing the
premium payable on the redemption of preference
shares or of any debentures of the company.
(Section 52)
Company cannot issue shares at discount other
than as sweat equity, no provision has been
provided for any approval. (Section 54)
Alteration of Share Capital shall be made only after
making application to the Tribunal and getting
approval. (Section 61)
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No reduction of capital shall be allowed if the
company is in arrears for payment of deposits,
accepted either before or after the commencement
of this Act. Reduction of share capital to be made
subject to confirmation by the Tribunal. The
Tribunal on receiving an application for reduction
of share capital, shall give notice to the Central
Government, Registrar and to the SEBI and consider
the representations received in this behalf
(Section 66)
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A company can make buyback even if it had at any time
defaulted in repayment of deposit or interest payable
thereon, redemption of debentures or preference shares
or payment of dividend to any shareholder or
repayments of any term loan or interest payable thereon
to any financial institution or bank, provided that
default must have been remedied and a period of 3
years must have lapsed after such default ceased to
subsist.(Section 66 (6))
When the company issues prospectus or make an offer
or invitation to the public or to its members exceeding
five hundred for the subscription of its debentures, it is
required to appoint a debenture trustee. (Section 71)
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The same are governed under following sections:Amalgamation:-Specific provision for purchase of
minority shares in case an acquirer or person
acting in concert with the acquirer become holder
of 90% or more of the issued capital of the
company, either directly or by virtue of any
amalgamation, share exchange, conversion of
securities or any other reason to notify the
company to buy the remaining equity shares.
(Section 236)
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Oppression and Mismanagement:-
In case of a company having share capital, not less
than 100 members or not less than 10% of total
members whichever is less or holding 10% of share
capital and in case of a company not having a share
capital, not less than 1/5th of total members of the
company can make a complain of Oppression and
Mismanagement of the company. The Tribunal may
make such order as it thinks fit to bring the matter
to end. (Sections 241 to 244) .
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3. Class Action (Section 245):-
Such number of members and depositors as may be
prescribed may make a class action to the Tribunal
for prevention of oppression and mismanagement in
the company. The Tribunal shall pass an order which
shall be binding on the company and all its
members, depositors, and auditors including audit
firm or expert or consultant or advisor or any other
person associated with the company. Following
penalty may be imposed if the company fails to
comply with the order: Company – Rs. 5 lakhs to Rs. 25 lakhs,
 Officer – Rs. 25000 to Rs. 10 lakhs, Imprisonment
3 years
Presented by:Jignesh Mehta,
B. Com, ACA and LCS.
9699490918.