Introduction to Capital market, Indian Financial system Video Lecture | Indian Financial System - B Com

ever thought what capital markets are
all about what is the whole hype about
Wall Street stocks bonds inflation and
all those mind-boggling jargons so here
we are to help you cut to the chase
welcome to the interactive session on
introduction to capital markets brought
to you by eye on education let's start
by breaking the word up if we said the
word capital what's the first thing that
comes to your mind I am NOT talking
about our country's capital here we are
talking from a business point of view
sell for most of us it's going to be
money and that's correct
money is the primary base for the word
capital and markets well markets refer
to a place where products and services
are bought and sold between buyers and
sellers putting the words together
capital markets are markets where money
is exchanged between people who have
access of it to those who are in need
now when we say excess he may not be a
snobbish guy with a fleet of super
luxury cars and a lot of cash it could
be anyone having a regular lifestyle
with some money for which he has no
immediate use similarly someone who is
in need may not be a beggar on the road
they are companies or organizations who
are already doing well in their business
but require more money to expand
operations I on example ace an
industrialist in the textile business
ace manages to clinch a deal with Gucci
to export textile cloth to their
manufacturing unit however his company
ace textiles Incorporated is currently
functioning at full capacity and has no
room for new orders if a STEC Styles
Incorporated takes up this contract then
he will have to set up another
industrial unit which would cost 10
million rupees ace can go to the bank to
borrow money but the bank will charge a
high interest rate chances are even if
ace can afford the interest rates banks
will scrutinize ace before lending to
him and
ask him hundreds of questions just like
our parents do before lending us money
there is another option ace can make his
company go public and get listed on the
stock markets this means that he is
reaching out to the public for
investments in his company in exchange
for part ownership of the company public
here means the common people who would
invest in ace as they believe in his
business got it still awake
yes no maybe anybody another common
question is what is a share let me start
by explaining that shares scripts equity
and stocks are jargons that actually
mean the same thing so next time you
hear someone saying any of the above you
know they are referring to the same
exact thing I on example a sand his
friends are going out for lunch and
decide to order a pizza of ten slices
that will cost them 100 rupees how much
is each of them supposed to pay for
their share of two slices 10 20 30 40
interaction but ace wants to eat some
more he is willing to pay a premium of
20% and buy another slice at 12 rupees
his friend Eric agrees to stay hungry
and instead earn the profit from the
sale now this makes ace the majority
holder for the pizza so he can decide
the toppings for the pizza he likes
pepperoni so that's what it's gonna be
but three others dislike pepperoni and
decide to gang up against the decision
together they are 60% of the
shareholders and so the group as a whole
has more control on decision taking and
now it's going to be BBQ chicken just
like the three friends wanted ace is
pissed off and is compelled to agree
replicate the example in the real market
and you understand that buying a share
of a company is like buying a slice of a
very large pizza the movements of the
markets are controlled by demand and
supply
isin demand leads to a rise in the
prices and vice-versa
similarly excess of supply leads to fall
in prices and vice-versa this is where
the investors make their profits and
losses from the investments made
depending upon their purchase price well
maybe we've got your mouth watering for
pizza too bad though we're an education
company not a pizzeria can't help you
there
so let's just continue with the learning
shall we
moving on the need of capital markets in
an economy I on example have you ever
been to a vegetable market you go to a
vendor to buy vegetables but my question
is why do we buy vegetables we all know
that planting a seed is not that
difficult why should we pay for
something we can do ourselves the best
answer to this is opportunity cost
simply put come on you've got better
things to do than grow vegetables all
due respect to farmers you guys are
doing a great job after all without them
we wouldn't be able to have the pizza
this means that we are willing to pay a
certain cost for buying products or
services instead of making them
ourselves
similarly the capital markets allow
investors to invest in companies they
believe in rather than starting similar
businesses but how do you believe in a
company
time for another eye on example Ace saw
a documentary on rising oil prices and
realized that someday oil may get so
expensive that common man may find it
difficult to consume it on a regular
basis the future is going to be about
renewable sources of energy like solar
wind or even tidal energy amongst all
these ace believes that wind energy may
be the next big thing is he expected to
leave his current job and start setting
up windmills all around the world he may
not have the time or resources to do
something like that he wants to be part
of the booming industry but does not
want to physically be involved in the
operations capital markets allow him
do that by investing in shares of Sue's
Elan energy one of the world's largest
wind power companies at the CMP current
market price as of the 2nd of January
2012 it is trading at 18 point 10 rupees
on the BSE Bombay Stock Exchange it is
cheaper than a burger from McDonald's
okay wakey-wakey do you understand so
far yes or no let's just go off-topic
for a minute to help you understand why
you need to invest your money in the
first place why can't we just spend most
of our money like so many Americans who
sometimes spend even more than what they
actually earn by using a credit card the
reason that you don't want to be like
them is because you need to save a
certain amount of money for emergencies
what if a tsunami was to wash your house
away or something took away any other
basic requirement when you were older or
retired but come on let's face it are
you really on this planet to just live
with the basic requirements we all have
dreams dream cars dream homes dream
everything those dreams can come true
but not by luck well it unless you're a
lottery winner these dreams will remain
dreams if you're one of the people who
decides to buy new pairs of shoes or
Armani jackets on the day you get your
paycheck eye on example ace got lucky
after his graduation he got himself a
job paying 50,000 rupees per month which
is six hundred thousand rupees or better
understood as six lakh rupees in a year
let's assume half of that is spent on
living expenses eating drinking and
partying he's left with 300,000 rupees
or 3 lakhs at the end of the year the
truth is that he can't buy his dream
house or the car he wanted even after 20
years but his salary will not remain
constant forever
at the same time we can't ignore the
fact that inflation is growing at almost
9% in India so while you're making all
that money
the prices of products and services are
rising too even if you manage to beat
the inflation and double or triple your
salary in the next 10 years you probably
won't be able to achieve all of the
goals you set out for the bigger
question here is how do we make
sure we don't get trapped in this
situation how do we ensure a better
living the answer is obvious just
because you are in envy of that guy who
comes to college in a BMW since his
father's paying for it don't spend all
your hard-earned money by buying super
luxury brands invest your money of
course pampering yourself is good but
don't spend all of it on your funky
haircuts and branded clothing are we
clear up to here you do see the need to
invest your money now
right all right so this is where it gets
interesting you have some money and you
are convinced that you should invest but
where should you invest how do you know
where to put your money investments are
subjective from individual to individual
and depend on various things the basic
distinguishing takes place with the
fundamentals like risk taking ability
timeframe for investment and the amount
to be invested I on example if you are
married and have children okay wait
let's make them children who are about
to go to college you'll probably want to
invest in safer assets that provide a
reasonable return to sustain the family
living on the other hand if you are
young and unmarried with no children
then you might invest in higher risk
investments which give higher growth
prospects rather than keeping it safe in
a bank at only a nominal interest rate
to understand better we go into the
concept of risk and return risk is
defined as the possibility of someone
losing a part or the whole of their
capital invested and return is the
amount that can be earned by investing
the capital in a certain asset let's
relate it to poker or any other casino
based game the higher you bet the higher
the gains but you always have a chance
of losing the money you bet investments
too are structured in the same way but
they are not the same as gambling unless
they are based completely on intuition
and no
research you can either invest in a
large organization like Reliance which
provides good security but not extremely
high returns on investment or invest in
smaller companies that you believe have
a bright future however since it is yet
to prove itself the risk of investment
is considerably high but the ability to
rise in value is high as well but how do
you choose a company in the first place
how do you predict a company's future
performance I on example the
world-renowned investor mr. Warren
Buffett one of the world's wealthiest
persons began investing in the markets
at the age of 11 one of his famous
investments was Coca Cola he believed
that if he liked drinking Coca Cola and
his friends liked it too there was a
good possibility that many others would
like the product - which would finally
lead to the growth of the company Warren
Buffett believed in a concept known as
value investing which deals with looking
for the value that an organization is
creating this is precisely what you can
do to start investing in the markets
look for companies that add value to
your life and companies that offer
products or services that you really
believe in
if Domino's delivers the best pizza to
your doorstep within 30 minutes and you
love the taste every time then you know
that there is great potential in that
company however what you are looking at
in this example are long-term
investments which may not make you a
millionaire overnight these are
something that will build year on year
and finally yield lucrative valuations
Aion example if you or your parents had
invested ten thousand rupees and bought
100 shares of Wipro a renowned name in
the IT industry in 1981 because of the
belief in the IT industry how much do
you think it would have been worth in
2005 about 25 years after making the
investment any one four point one three
billion rupees or four hundred thirteen
CROs yes it's true if you or your
parents had invested a mere 10,000
Pease you would be driving a Ferrari and
living in a beachfront mansion even
though this example seems so interesting
the fact is that not many people
actually stick with a company through
the entire journey let's assume you buy
something for ten thousand rupees and a
few years later someone offers to buy it
from you at ten million rupees would you
sell it if not would you sell it at a
billion rupees not many people will have
the vision or the belief that their
investment may actually rise up to four
point one three billion rupees or four
hundred thirteen crows a better way of
looking at this is that in the capital
markets the actions of any investor is
dependent on emotions like hope fear and
greed hope that if he is in a loss that
it may recover so he should hold on fear
that the price of an asset may fall and
greed to capitalize on the possibility
of higher profits keep these three
emotions under control and you will be
on your way to becoming a successful
investor in the capital markets thank
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