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Re: MBA Project on HDFC Standard Life Insurance -
June 24th, 2009
A STUDY ON THE IMPACT OF GLOBAL MELTDOWN ON INDIAN CAPITAL MARKET - 2008 - April 10th, 2009
The study is on the “Impact of Global Meltdown on Indian Capital Market” of with particular reference to Annamalai capital services Ltd.
The primary objective of the study is to measure the level Global Meltdowns impact on the Indian capital market.
Primary and Secondary data are used for collecting information. Primary data is collected through questionnaire and secondary data is been collected through Internet , Journals and Magazines.
Based on the topic a survey was conducted with a questionnaire among the investors in stock market to analyse the cause for the global market meltdown and its impact on the various industries. It is been found that the subprime crisis as the major cause for the meltdown and as far as India is concerned IT, Real estate, Banking and infrastructure industries were adversely affected. And a secondary analysis was been made to find the impact of global meltdown on Indian capital market with particular reference to stock market and the reasons for the stock market slow down. Based on the analysis BSE sensex has been affected due to insolvency of major banks in US ,the fall in oil prices and global inflation.
It is suggested to the investors to play safe by investing in blue- chips and undervalued shares and to the government, RBI& SEBI to take further more steps, to bring back the FII to invest in India.
Bombay Stock Exchange is the oldest stock exchange in Asia with a rich heritage, now spanning three centuries in its 133 years of existence. What is now popularly known as BSE was established as "The Native Share & Stock Brokers' Association"in1875.
BSE is the first stock exchange in the country which obtained permanent recognition (in 1956) from the Government of India under the Securities Contracts (Regulation) Act 1956. BSE's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized. It migrated from the open outcry system to an online screen-based order driven trading system in 1995. Earlier an Association Of Persons (AOP), BSE is now a corporatised and demutualised entity incorporated under the provisions of the Companies Act, 1956, pursuant to the BSE (Corporatisation and Demutualisation) Scheme, 2005 notified by the Securities and Exchange Board of India (SEBI). With demutualisation, BSE has two of world's best exchanges, Deutsche Börse and Singapore Exchange, as its strategic partners. Over the past 133 years, BSE has facilitated the growth of the Indian corporate sector by providing it with an efficient access to resources. There is perhaps no major corporate in India which has not sourced BSE's services in raising resources from the capitalmarket.
Today, BSE is the world's number one exchange in terms of the number of listed companies and the world's 5th in transaction numbers. The market capitalization as on December 31, 2007 stood at USD 1.79 trillion . An investor can choose from more than 4,700 listed companies, which for easy reference are classified in to A,B,S,T and Z groups.
The BSE Index, SENSEX, is India's first stock market index that enjoys an iconic stature, and is tracked worldwide. It is an index of 30 stocks representing 12 major sectors. The SENSEX is constructed on a 'free-float' methodology, and is sensitive to market sentiments and market realities. Apart from the SENSEX, BSE offers 21 indices, including 12 sectoral indices. BSE has entered into an index cooperation agreement with Deutsche Börse. This agreement has made SENSEX and other BSE indices available to investors in Europe and America. Moreover, Barclays Global Investors (BGI), the global leader in ETFs through its iShares® brand, has created the 'iShares® BSE SENSEX India Tracker' which tracks the SENSEX. The ETF enables investors in Hong Kong to take an exposure to the Indian equity market.
BSE has tied up with U.S. Futures Exchange (USFE) for U.S. dollar-denominated futures trading of SENSEX in the U.S. The tie-up enables eligible U.S. investors to directly participate in India's equity markets for the first time, without requiring American Depository Receipt (ADR) authorization. The first Exchange Traded Fund (ETF) on SENSEX, called "SPIcE" is listed on BSE. It brings to the investors a trading tool that can be easily used for the purposes of investment, trading, hedging and arbitrage. SPIcE allows small investors to take a long-term view of the market.
BSE provides an efficient and transparent market for trading in equity, debt instruments and derivatives. It has a nation-wide reach with a presence in more than 450 cities and towns of India. BSE has always been at par with the international standards. The systems and processes are designed to safeguard market integrity and enhance transparency in operations. BSE is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certification. It is also the first exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE On-line Trading System (BOLT).
BSE continues to innovate. In recent times, it has become the first national level stock exchange to launch its website in Gujarati and Hindi to reach out to a larger number of investors. It has successfully launched a reporting platform for corporate bonds in India christened the ICDM or Indian Corporate Debt Market and a unique ticker-***-screen aptly named 'BSE Broadcast' which enables information dissemination to the common man on the street.
In 2006, BSE launched the Directors Database and ICERS (Indian Corporate Electronic Reporting System) to facilitate information flow and increase transparency in the Indian capital market. While the Directors Database provides a single-point access to information on the boards of directors of listed companies, the ICERS facilitates the corporates in sharing with BSE their corporate announcements.
BSE also has a wide range of services to empower investors and facilitate smooth transactions:
Investor Services: The Department of Investor Services redresses grievances of investors. BSE was the first exchange in the country to provide an amount of Rs.1 million towards the investor protection fund; it is an amount higher than that of any exchange in the country. BSE launched a nationwide investor awareness programme- 'Safe Investing in the Stock Market' under which 264 programmes were held in more than 200 cities.
BSE On-line Trading (BOLT): The BSE On-line Trading (BOLT) facilitates on-line screen based trading in securities. BOLT is currently operating in 25,000 Trader Workstations located across over 450 cities in India.
BSEWEBX.com: In February 2001, BSE introduced the world's first centralized exchange-based Internet trading system, BSEWEBX.com. This initiative enables investors anywhere in the world to trade on the BSE platform.
Surveillance: BSE's On-Line Surveillance System (BOSS) monitors on a real-time basis the price movements, volume positions and members' positions and real-time measurement of default risk, market reconstruction and generation of cross market alerts.
BSE Training Institute: BTI imparts capital market training and certification, in collaboration with reputed management institutes and universities. It offers over 40 courses on various aspects of the capital market and financial sector. More than 20,000 people have attended the BTI programmes
INTRODUCTION TO THE TOPIC
INTRODUCTION TO THE TOPIC
The Global Economy
The global market melt down has shaken all of us. The crux of this issue is attributed to significant mis-pricing of risks in the financial system. The impact was compounded by relatively easy monetary policies at major financial centres and globalisation of liquidity flows, possibly without adequate safeguards. Complex and structured derivatives and inadequacy of majority of stakeholders in understanding these innovation also played their part. The crises first emerged as a liquidity crisis whose first symptoms appeared at the beginning of August 2007 when serious disruptions surfaced in the inter-bank market. More than a year later, tensions still remain. Recent weeks have witnessed abnormal levels of spreads, a shortening of maturities, and contraction of some market segments.
Through linkages, these tensions are also affecting non-financial sector and, more broadly the financing of the economy.The crisis also emerged as a crisis of securitisation. Securitisation, is an old and tested technique used to refinance a range of loans. What was new about it is that it got used extensively in certain unstable financial structures, which were financing short-term assets that were illiquid, complex, and whose value proved to be uncertain. The instability of such structures was therefore largely masked. Indeed, cheap money allowed easy refinancing of poor quality debt and of assets with uncertain value. Also, favourable ratings and credit enhancements artificially boosted the quality of loans underlying such structured products. The rise in defaults on such loans, first on sub-prime mortgages, followed by others, triggered a chain of reactions whose consequences are still unfolding.
In many developed countries, Banks have ceased to trust each other's creditworthiness and Liquidity has dried up. Governments and Central Banks have moved aggressively to support banks' solvency and resilience by infusing capital in the form of bailout packages The challenge for the authorities is to assess whether and to what extent regulations reinforce these dynamics and impact the entire financial system. Some cases that are already in public domain include such big names as Citigroup, Bear Stearns, Merrill Lynch, Goldman Sachs, AIG, Lehman Brothers, Freddie Mac, Fannie Mae, RBS, ING Fortis, Deutsche, Barclays, BNP Paribas, Soc Gen, Swiss Re, the list seems endless ... Uncertainty about possible losses yet to be disclosed by others has not yet ceased. As they say, things are predicted to get worse, before they get better.
World growth is projected to slow from 5 percent in 2007 to 3.75 percent in 2008 and to just over 2 percent in 2009, with the downturn led by advanced economies. Weakening global demand is depressing commodity prices. Oil prices have now declined by over 70 percent from a record USD 147 a barrel in July 2007,reflecting the major global downturn, the strengthening of the US dollar, and the financial crisis. Similarly, metals and food prices have fallen from their recent peaks. While this eases the burden on households in advanced economics and emerging economies in Europe and Asia, it lowers growth prospects too.
Across the globe, markets have entered a vicious cycle of asset de-leveraging, price declines and investor redemptions. Credit spreads spiked to distressed levels and major equity indices dropped. Emerging markets came under even more severe pressure as spreads on sovereign debt doubled, returning to 2002 levels, with more than a third of the countries in the benchmark EMBI index trading at spreads above 1,000 basis points. Emerging equity markets lost about a third of their value in local currency terms and more than 40 percent of their value in U.S. dollar terms, owing to widespread currency depreciations. Typical central banks' responses in major countries have been adjustment of interest rates for borrowing and lending followed by money market operations designed to inject liquidity in order to avoid a break-down in payment systems among banks. This has been supplemented by mechanisms for financial transactions among the largest of the financial intermediaries, which automatically impact the second and third rung intermediaries in appropriate proportions. Growth stimulus packages have supplemented monetary measures.
Economic crisis of 2008
In 2008, an economic recession was suggested by several important indicators of economic downturn. These included high oil prices, which led to both the drastic high food prices (due to a dependence of food production on petroleum, as well as using food crop products such as ethanol and bio diesel as an alternative to petroleum) and global inflation; a substantial credit crisis leading to the drastic bankruptcy of large and well established investment banks as well as commercial banks in various, diverse nations around the world; increased unemployment; and signs of contemporaneous economic downturns in major economies of the world, a global recession.
In December 2008, the NBER declared that the world's largest economy, the United States, had been in recession since December 2007