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Foreign Tire Manufacturers Accounted For 70% Market Share In China, Supporting

2009 China car sales surge feast, did not stimulate domestic tire manufacturer’s rapid growth, but “fertilization” of the past several years in China, the international tire giants, some of the company’s complete tire sales increased as much as 50%.

    At present, Michelin, Goodyear, Hankook Tire and other international enterprises have occupied 70% of China’s passenger vehicle matching the overwhelming share of the market.

    A huge increase in sales

    Tire Factory’s business is divided into car matching (hereinafter referred to as “OEM”) and the replacement tires in two parts.

    ”First Financial Daily” from France and South Korea Hankook Michelin’s annual report the data to see the two companies in China last year, passenger cars (and light truck) tires OEM sales went up by 65% and 55%. Although none of Goodyear and Bridgestone public figures, but the industry is estimated that there are no small increase.

    At present, China has become the only bright spot in foreign tire companies. Michelin’s global operating profit in 2009 fell 6%, but because of the surge in China’s auto demand, the Chinese market for the first time to replace the U.S. as the Michelin tires used by the world’s largest market. Hankook Tire also told this newspaper that is available throughout 2009, “ups and downs,” the word to describe. Its 2005 to 2008, the average OEM sales increased by more than 10%, but the strong sales momentum in 2009 have given them surprised.

    China Rubber Industry Association Tire Branch of the Secretary-General Cai Weimin told reporters that in 2009 domestic 44 tire sales revenue grew by 7.1%, “included in the statistics of foreign companies and China’s Taiwan enterprises, such as Michelin, Kumho Tire, Nanjing plant, Hankook and Taiwan are the new tires and so on, but there are more domestic-funded enterprises. ”

    He said the company’s sales increased by more than 40 compared to previous years is normal, but passenger tire market growth compared to OEM, or a lot less.

    OEM is a high degree of monopoly of foreign capital

    Cai Weimin said the foreign tire companies have divided up the country for at least 70% of the passenger car OEM market. The figures provided by Hankook Tire, said their presence in the field 20% of the share.

    This reporter has learned, F3, Excelle, Yuet move, Jetta, Santana, Accord, Elantra, QQ, Corolla and Camry and other top ten new cars sold last year, 90% with foreign tires.

    CAI Wei-min analysis, a clear increase in car sales companies such as FAW-Volkswagen, Shanghai GM, Beijing Hyundai and Dongfeng Nissan are all joint-venture status, foreign shareholders are more willing to do with the overseas big tire package. Moreover, the Korea-Japan joint-venture auto company departments like to use their own country tires, even though these products has long been a “MadeinChina”.

    Mr. Yang is also a Goodyear dealer told this reporter that domestic tire actually much cheaper than overseas. Same diameter as the 15-inch tires, overseas enterprises OEM pricing is 400 yuan / Article expensive than the domestic one times more, but better-funded big-name high-profile tires, vehicle operators also believe that consumers still prefer big, so they inclined to the latter order.

    He also said that domestic enterprises are the lack of marketing capabilities, “despite the Hankook is the world’s seventh largest tire factory, but its vehicle plant in the OEM channel and even on public relations more than Michelin, Bridgestone and other companies, OEM share in recent years has become a lot. “Hankook is currently moving to do, not only for the modern Yuet matching tires, but also into the Audi A6L, Skoda Series, Touran, MA 6, the new Passat automobile plants and other non-Han University .

    In fact, China’s second choice, exquisite, triangle and southern China are exported to the U.S. tire quality has also been internationally recognized, and individual companies also do OEM for foreign brands, it is still difficult Prize joint-venture automobile plant importers. Shandong Linglong Rubber a manager, says that “Some automobile companies do not understand our products, which requires a process. Our goal is to take some of the first multi-domestic vehicle factory orders, and then slowly infiltrate into the automobile joint venture plant.” The Another company insider, told reporters that the existing OEM customers have included Xiali, Beijing Foton, Chongqing Hongyan, FAW and so on.

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ALBANIA – Foreign Investment in an emerging market

Albania is a South Eastern Balkan country situated on the eastern Adriatic Coast in Europe. The country borders the former Yugoslav provinces of Montenegro, FYR-Macedonia, Serbia and Greece to the South. The capital is Tirana. (The World Bank Group, 2009).

Personal foreign direct investment (FDI) interest in Albania is derived from closely monitoring Albania’s transition into a NATO country and prospective European Union (EU) member. The process of accession of Albania to the EU started in January 2003. Albania’s admission to the EU depends on the countries future economic and political stability. Albania has been engaged with EU institutions and joined NATO (North Atlantic Treaty Organization) April 1, 2009. (Wikipedia Contributors cited 2009). Albania formally applied for EU membership 28 April 2009.

Ranked as one of the poorest European countries, numerous Albanian ex-patriots reside and work throughout the EU and Switzerland. A contributing high birth rate, the country has vast foreign direct investment potential considering its prospective EU status, geographical and geopolitical location. Albania is a distinctive classification of an emerging market and future currency change from the Lek to the Euro (improving the countries purchasing power and wealth), reveals there is a vast monetary opportunity for multinational Australian business to invest in a venture with a controlling interest.

FDI occurs when a firm invests resources in business activities in countries outside its home base (Hill 2009, p11), such as Albania. The main foreign direct investment areas that Australian Multinationals should be considering are Construction (highways, infrastructure), Property, Renewable Energy, Finance and Tourism. The types of companies that may be interested in this type of investment are the likes of Origin Energy, McMahon holdings, Raine and Horne.

Historically, most FDI has been directed at developed nations. FDI into developing or emerging nations has traditionally increased substantially (Refer to Graph 1, Appendix 1) since 1990 (Hill 2009, p243-244). Therefore Albania is an excellent FDI opportunity that may provide substantial profitability for Australian firms. Most recent inflows have been targeted at the emerging economies of South East Asia, hence there is an unexplored potential for Australian firms to invest in Albania.

Real GDP in Albania has averaged 6% in previous years due to a surge in public investment. Consumer price inflation is under the 4 per cent upper limit of the central bank’s informal target. (Refer to Graph 1, Appendix 2). The Albanian LEK will continue to be supported in 2009 by large foreign-currency remittances from Albanians living abroad as well as relatively high interest rates. Exports should grow relatively strongly in 2009 and forecasted current account deficits averaging around 11% of GDP. (Business Eastern Europe, 2008). (Refer to Table 2, Appendix 2).

The feasibility of the client company to enter the Albanian market is positive. The democratic Albanian government encourages foreign investment, thus in an ongoing effort to privatize public enterprises, the government is seeking qualified foreign investors in key sectors, including telecommunications, energy, oil and gas, finance, and construction. (Foreign Investment Climate, 2008)

Albania’s infrastructure is currently inadequate, and there is little budgetary money for improvements. The government inherited a poor highway system from the Communist period. Major road building projects are currently underway, and an estimated 6000 kilometres of roadway will be implemented by 2013. (Euromonitor International, 2009). Therefore there is an immense opportunity for Australian based Civil Engineering/construction firms to tender for a substantial sector of work, and scope for profitable investment.

Feasibility of the client company entering the Albanian markets in a Greenfield capacity is varied. Currently, Albania ranks 89th out of 183 countries in the benchmark of Ease of doing business. Starting a business, Albania rank’s 68th in 2009 and set to move to 46th in 2010. (Refer to Table 1 in Appendix 3). The average time in days for Starting a business is 5 days as compared to 13 days for the overall OECD Average. This demonstrates that the Albanian government is moving in a positive direction to attract foreign investment. (The World Bank Group, 2009). However, the cost of starting a business Cost (% of income per capita) is substantially higher than the OECD Average (Refer to Table 1 in Appendix 4).

“Foreign firms obtaining credit” and “protecting investors” demonstrates that Albania is advanced in certain business investment areas – projected ranking 15th out of 183 country’s in both these facets in 2010, placing Albania in the top 10%. On the contrary, dealing with construction Permits (173rd in year 2010) and Employing workers (105th in year 2010) demonstrates that the foreign direct investment firms specialising in renewable energy and civil construction will need to take these important factors into consideration when investing and starting a Greenfield project. (The World Bank Group, 2009).

 The types of business ventures that are attractive for FDI are centred on construction infrastructure and energy. Albania’s energy crisis has been caused by the annual growth rate in the demand for power. The rate has been in excess of 8% and generation has struggled to keep pace. In a recent EU report it is acknowledged that Albania had undertaken some bold steps to restructure and liberalise the energy sector. The European Bank for Reconstruction and Development (EBRD) indicates that it will provide immense financing for new power generation. Therefore, renewable energy is also an extremely attractive foreign investment option. (GMB Publishing 2009).

Hydroelectricity generation has historically provided the majority of Albania’s energy capacity and continues to represent its main generation source. Through a lack of investment funds, only 35 per cent of potential capacity for development is currently being exploited. (GMB Publishing 2009). Australian based hydroelectric energy firms have a substantial advantage in expertise in exploiting the Albanian market. Studies show that Albania has a good solar energy potential. There are no large scale PV projects currently in operation; however the installation of major solar energy projects in planned by the Albanian government in 2015. (GMB Publishing 2009). Australian solar firms have the opportunity to explore Greenfield solar energy projects.

Various US Asset Management firms are launching into the fledgling Albanian property market to take advantage of the growing mortgage market. Albania is set to benefit from its planned accession to the EU, which it expects to be completed by 2014 and has already received €100m in funding. A 2007 World Bank report highlighted Albania’s high GDP growth and a dramatic decrease in poverty. Albania has received significant investment from international bodies such as International Bank for Reconstruction and Development. (Hirst, T, 2008). Commercial and residential property is an area of foreign direct investment that is attractive with the high power of the $ A as compared to the Albanian LEK currency. Currently A = 85.01 ALL (Albanian LEK) and 1ALL = 0.1177 $ A. (Quick Cross Rates, 2009). When Albania enters the EU zone, their currency will become stronger and inline with Euro zone parity.

Albania’s capital markets remain amongst the most embryonic within the whole of the central and Eastern Europe region. There are encouraging steps taken to put in place the legal and regulatory framework to build a functioning stock exchange. This makes convergence with the EU easier and provides financial and banking opportunities through a foreign investment framework to operate within. (Market Access 2008).

Albania recently witnessed an impressive growth in tourism in 2009. The government of Albania announced that there was a 42 percent increase in the number of tourists visiting the country, AENews reported.  Albanian government is claiming its coasts are more beautiful than those of the Riviera. (Forbes S, 2008). With new hotels, resorts, and restaurants, the Albanian private sector in tourism has been growing an average of 30 percent for five years. The Albanian economy had the best growth in Europe; foreign investments in Albania have increased 59 percent this year. Australian firms can invest in the infant tourism industry by providing expertise, with huge profit potential. (New Europe 2009).

The Albanian government has induced an affirmative attitude towards foreign investment; its strategy to strengthen the business environment was incorporated by the removal of administrative barriers to investment. The privatisation agenda is gaining momentum and the government is encouraging foreign investment. Almost one-third of the country’s population works outside the country. The remittances they provide help alleviate poverty and drive a boom in housing construction as well as infrastructure (Euromonitor International, 2009).

Albania’s Albania’s Democratic Party government knows full well that a battle for foreign investment looms and that Albania has some catching up to do. The previous low level of foreign interest is largely due to the fact that Albania’s international image is poor, but wrongly so. Albania’s service sector, especially its restaurants and hotels, are exceptional. The hospitality is great and Albanians are an outward-looking people. They are ready for an influx of tourists. Albania is also rich in natural resources, such as oil, gas, copper, chrome and hydroelectric potential. (Austin RC 2006)

The Albanian government under Prime Minister Berisha has created an excellent environment to attract investors to Albania. Special emphasis was paid improving infrastructure. The efforts on improving the legal system to protect investors also proved significant. It was also reported that many Western European companies have chosen to escape the high taxes in Europe by investing in Albania as the latter offers the best tax system in Europe with a 10 percent flat tax. (NEWEUROPE 2009).

The Albanian government has worked to make it easier to invest and do business in Albania, instituting a one-stop shop for registering a new business. Education is also emphasized, particularly by the private sector. Since the fall of communism, Albania has been an ally of the US, supplying troops. Its positive foreign policy attitude, economic and anticorruption successes are models for other Muslim nations. (Forbes S, 2008).

 Foreign firms experience various investment restrictions in Albania. Despite some recent improvement, Albania’s business freedom remains constrained by a burdensome regulatory environment. Even though starting a business is relatively quick, obtaining a business license requires 24 additional procedures and almost 100 more days than the world average of 225 days. (The Heritage Foundation, 2009).

Foreign and domestic firms are treated equally under the law, and nearly all sectors are open to foreign investment. Agricultural land may not be purchased by foreign investors but may be leased for up to 99 years. The Albanian state can expropriate an investment or asset for the purpose of public interest, but there are no legal provisions for compensation. This can be a deterrent or restriction for an Australian firm specialising in niche Albanian markets. Non-transparent regulations, inefficient bureaucracy, and corruption also restrict and discourage foreign investment in Albania. (The Heritage Foundation, 2009).

The financial system is relatively underdeveloped by western standards, even though progress has been made. Even though many banks have expanded their services, the use of cheques and credit cards is still not widespread. Although short-term credit is available, it is extremely expensive and difficult to obtain without large collateral security. This can restrict foreign investment for an Australian firm. In addition customer service is relatively poor compared to western standards. (Macro-Accessibility 2007).

The government has separated the Tirana Stock Exchange from the central bank, but the stock market remains inactive, and no shares are listed yet. Australian financial investment firms are currently restricted considering the Stock exchange is at an infant stage. Albania’s judicial system enforces the law weakly and is one of the country’s most tainted institutions. Judges are often appointed strictly for political reasons and can be corrupt. Protection of intellectual property rights is weak, and violations of copyrights and trademarks are common, therefore Australian and foreign firms with patented investments are subject to infringements without legal protection. (The Heritage Foundation, 2009). Land rights are not well defined, especially in coastal areas, and 70 percent of all civil court cases involve property disputes. This could have adverse effects for civil engineering organisations. (The Heritage Foundation, 2009).

Corruption in Albania is perceived as widespread. Albania ranks 105th out of 179 countries in Transparency International’s Corruption Perceptions Index for 2007, a very slight improvement from previous years. Corruption pervades all sectors and levels of government. Albania is a major transit country for the traffic in arms, narcotics, contraband, and humans. (The Heritage Foundation, 2009).

There a vast advantages and gains of FDI into Albania. It stimulates economic development and has helped developing countries such as Albania when faced with economic hardship previously. (Economy Watch 2009). Multi-billion dollar projects are underway in the energy sector to produce energy from wind, and solar sources, in addition to road and infrastructure construction. With FDI in the tourism industry, construction jobs in hotels and resorts are underway, also generating employment in the Albanian services sector. (New Europe 2009).

FDI into Albania permits the transfer of technologies and assists in competition between producers within the local market. Gains in the economy include the development of skills, and human capital resources by Albanian employees of Energy, Construction and Engineering firms receiving training on the operations of a business. The creation of new jobs, and increases the salaries of workers leads to lifestyle enhancement. (Economy Watch 2009).

The profits that are generated by FDIs that are made in Albania can be used for the purpose of making contributions to the revenues of corporate taxes. FDI allows for the development of the manufacturing sector. (Economy Watch 2009).

The Albanian economy has been on the rise, with an average annual GDP growth higher than anywhere else in the region. Such impressive growth has been largely due to controlling inflation in addition to investment. Previously, Albanian professionals would immigrate to other nations. “Brain drain” is used to describe the phenomenon of emigration of highly qualified professionals from Albania to other EU nations. FDI in Albania contributes to positive economic growth, and professionals are a source of capital for developing countries such as Albania. Reversing the brain drain has had positive effects on education, income distribution and economic welfare. (Centre for Social and Economic Studies, 2006)

A country’s balance of Payments accounts calculates its payments to and receipts from other countries.  If the FDI in Albania is a substitute for goods and services, the effect can positively improve the current account of the host countries balance of payments. (Hill CW, 2009). According to a UN report, inward FDI by foreign multinationals has been a major driver of export led economic growth, which can be utilised by Albania.

Adverse effects of foreign investment in Albania mean that enhanced competition as well as being a positive aspect could drive indigenous companies out of business. Additionally, foreign multinationals could raise prices, causing inflationary pressure within the Albanian economy. Key decisions affecting the host country’s (Albania) economy may be made by a foreign investment company that does not have total commitment to the Albanian economy. (Hill, CW, 2009)

Considering there are minimal well established incumbent enterprises in Albania, a Greenfield investment may be an option, even though there may be benefits in acquiring an existing firms skill’s, embedded competencies and culture through purchasing an established organisation. (Hill 2009, p506). However, the process of setting up a new Greenfield hierarchy may be the only viable mode in certain instances in Albania within engineering and construction due to lack of infrastructure and expertise in an ex-communist nation.

Appropriate entry modes of investment into Albania include investing with the Overseas Private Investment Corporation (OPIC) which is a US government agency that sells investment services into emerging markets. The most important fund for the region is the $ US 150 million Southeast Europe Equity Fund (SEEF), managed by Soros Private Funds Management. (Macro-Accessibility 2007).

The Trade and Development Agency is also a US government agency which promotes private sector participation in developing countries. In Albania, TDA has recently financed projects to implement roads, ports, the energy sector as well as various private sector projects. (Macro-Accessibility 2007).

The International Finance Corporation (IFC) is a member of the World Bank Group that offers a full array of financial products to companies in developing member countries such as Albania. The European Bank for Reconstruction and Development (EBRD) promotes competition, privatisation and entrepreneurship taking into account different stages of transition of developing countries. The EBRD has equity positions with the Albanian National Commercial Bank, and the Albanian Reconstruction Equity Fund and the Italian-Albanian bank. (Macro-Accessibility 2007). In addition to acquiring an existing company, obtaining finance from these corporations is a feasible entry point for an Australian firm entering a Greenfield project in Albania.

 Poor transport, telecommunications and other infrastructure are considered to be the main obstacles and barriers to investment. Albania was Europe’s poorest country, but levels of per capita income have more than doubled over the past 10 years. Despite this, the economy remains vulnerable on several fronts due to a culture of tax evasion, significant amounts of long term domestic debt and weak anti-money laundering laws. (Euromonitor International, 2009).

Corruption issues within the government and a weak judiciary system pose problems in Albania’s efforts to achieve greater cooperation with the EU. The EU’s members are concerned about the countries commitment to improving the rule of law and crime. (The World Bank Group, 2009). Multinational businesses may consider the lack of law as an impediment to a foreign direct investment.  (Euromonitor International, 2009).

 A major barrier to investment may be the issue of developing free trade zones to attract foreign investment. Existing law provides the authority to establish free trade zones and a special zone commission has been established by the Albanian government to identify potential free zone sites. However, no free trade zones have yet been established. (Macro-Accessibility 2007).

Apart from the monetary opportunities and profit yields that Australian firms and the home countries establishing FDI’s receive, there are opportunities for the host country (Albania) of such foreign investments. Albania’s young, literate populace represents a surplus of labour, reflected in the unemployment rate of 14 percent. While some members of the labour force are highly skilled, many work in inefficient industries with outdated technology. Via foreign firms investing in Albania, the skill sets and technological capabilities of the Albania’s young work force is enhanced. (Macro-Accessibility 2007). Albania’s are rapidly learning market economic practices and often display impressive entrepreneurship. (Macro-Accessibility 2007). There are definitely significant opportunities for the host country Albania through FDI.

 

References

 

 

Austin RC 2006, ‘Albania’s new investment strategies’, SETimes.com, viewed 22 October 2009,

 

Business Eastern Europe, 2008, ‘Business outlook – Albania’, 10 Oct 2008, Vol. 37 Issue 377, p3-3.

 

Centre for Social and Economic Studies, 2006, ‘From Brain Drain to Brain Gain: Mobilising Albania’s Skilled Diaspora’, Development Research Centre on Migration, Globalisation and Poverty, University of Sussex, UK

 

Economy Watch, 2009, ‘Benefits of Foreign Direct Investment’, viewed 23 October 2009, < http://www.economywatch.com/foreign-direct-investment/benefits.html>

 

Euromonitor International, 3 Jul 2009, ‘Albania: Country profile’ viewed 21 October 2009,

 

Forbes, S 2008, ‘Muslim Success Story’, Business Source Complete, 4 Jul 2008, Vol. 181 Issue 7, p15-16

 

Foreign Investment Climate, 2008, ‘Albanian Investment Overview’ Albania Review 2008, viewed 21 October 2009.

 

GM Publishing, 2009, ‘Renewable Energy in SEE – Albania, viewed 21 October 2009.

 

Hill, CWL, 2009, International Business – Competing in the Global Marketplace, 7th edn, McGraw-Hill Internation Edition, Washington USA.

 

Hirst, T, 2008, ‘Fund Launch’, Fund Strategy, viewed 20 October 2009.

 

Macro-Accessibility 2007, ‘ICON Group International, Inc’, viewed 23 October 2009,

 

Market Access, 2008, ‘Albania: Building a Stock Market’ viewed 20 October 2009,

 

NEWEUROPE 2009, ‘Albania has the world’s best growth in tourism investment’, neurope.eu, viewed 23 October 2009,

 

Quick Cross Rates, 2009, ‘XE.COM exchange rates’, viewed 25 October 2009,

 

The Heritage Foundation, 2009, ‘Index of Economic Freedom – Albania’, viewed 22 Oct 2009,

 

The World Bank Group, 2009, ‘Doing Business in Albania’ viewed 18 October 2009, <http://www.doingbusiness.org/ExploreEconomies/?economyid=3>

 

Wikipedia Contributors, 2009 September 30, ‘Accession of Albania to the European Union’. [Internet]. Wikipedia The Free Encyclopaedia, viewed 21 October 2009, http://en.wikipedia.org/w/index.php?title=Accession_of_Albania_to_the_European_Union&oldid=305088136

 

 

 

 

 

Appendix 1

 

 

 

Graph 1 – Foreign Direct Investment Inflows by Region ($ US Billions). (Hill 2009, p244).

 

 

 

 

 

Appendix 2

 

 

Graph 1 – ALBANIA. GDP and Consumer Prices % Change, Year. (Business Eastern Europe, 2008).

 

 

 

 

 

Table 2. Albania – Data and Forecasts. (Business Eastern Europe, 2008).

 

Category

2008 Rank

2009 Rank

2009 Rank

Population, mn

3.10

3.11

3.12

Exchange rate ALL/EUR

120.25

119.40

119.45

Imports, US$ bn

4.50

4.90

5.30

Exports, US$ bn

1.30

1.50

1.70

Trade Balance, US$ bn

-3.20

-3.40

-3.60

Current account, % of GDP

-6.90

-5.50

-4.20

Forex reserves (gold) US$ bn

2.50

2.95

3.43

Foreign debt, % of GDP

18.2

17.5

16.3

 

 

Appendix 3

 

 

Table 1. This table shows summary Albania Doing Business 2010/2009 data for the selected economy (out of 183 countries), and the rankings by each topic. (The World Bank Group, 2009)

 

 

Ease of…….

Doing Business 2010 Rank

Doing Business 2010 Rank

Change in rank

Doing Business

82

89

+7

Starting a Business

46

68

+22

Getting Credit

15

12

+3

Protecting Investors

15

14

-1

Employing Workers

105

105

0

Dealing with Construction permits

173

170

-3

 

 

 

Appendix 4

 

 

Table 2. This table shows the challenges of launching a business in Albania. Included are the steps entrepreneurs can expect, the time it takes on average, and the cost and minimum capital required as a % of GNI capital. (The World Bank Group, 2009).

 

 

Indicator

Albania

Eastern Europe & Central Asia

OECD Average

Procedures (number)

5

6.7

5.7

Time (days)

5

17.4

13.0

Cost (% of income per capita)

17.0

8.3

4.7

Min. capital (% of income per capita)

0.0

21.5

15.5

 

Indian Capital market

INTRODUCTION

Capital markets in India have been a reflection of the country’s economic growth and development over the last two decades. Bombay Stock Exchange’s sensitivity index, the Sensex, has become the barometer of the Indian market. Several reports have been published by leading international agencies on the potential scope of the Indian capital markets. India’s growth story has important implications for the capital market, which has grown sharply with respect to several parameters — amounts raised, number of stock exchanges and other intermediaries, listed stocks, market capitalisation, trading volumes and turnover, market instruments, investor population, issuer and intermediary profiles.

The capital market consists primarily of the debt and equity markets. Historically, it contributed significantly to mobilising funds to meet public and private companies’ financing requirements. The introduction of exchange-traded derivative instruments such as options and futures has enabled investors to better hedge their positions and reduce risks.

SIGNIFICANCE OF CAPITAL MARKET

The capital market and the need for the economy to grow at the projected over 8 per cent per annum, the managers of the Indian economy have been assiduously promoting the capital market as an engine of growth to provide an alternative yet efficient means of resource mobilization and allocation. The capital market acts as a brake on channeling savings to low- yielding enterprises and impels enterprises to focus on performance. It continuously monitors performance through movements of share prices in the market and the threats of takeover. This improves efficiency of resource utilaisation and thereby significantly increases returns on investment. As a result, savers and investors are not constrained by their individual abilities, but facilitated by the economy’s capability to invest and save, which inevitably enhances savings and investment in the economy. Thus, the capital market converts a given stock of investible resources into a larger flow of goods and services and augments economic growth.

 

HISTORY OF INDIAN CAPITAL MARKETS

The history of the Indian capital markets and the stock market, in particular can be traced back to 1861 when the American Civil War began. The opening of the Suez Canal during the 1860s led to a tremendous increase in exports to the United Kingdom and United States. Several companies were formed during this period and many banks came to the fore to handle the finances relating to these trades. With many of these registered under the British Companies Act, the Stock Exchange, Mumbai, came into existence in 1875. It was an unincorporated body of stockbrokers, which started doing business in the city under a banyan tree. Sir Phiroze Jeejeebhoy was another who dominated the stock market scene from 1946 to 1980. His word was law and he had a great deal of influence over both brokers and the government. The BSE building, icon of the Indian capital markets, is called P.J. Tower in his memory.

 

The planning process started in India in 1951, with importance being given to the formation of institutions and markets The Securities Contract Regulation Act 1956 became the parent regulation after the Indian Contract Act 1872, a basic law to be followed by security markets in India. To regulate the issue of share prices, the Controller of Capital Issues Act (CCI) was passed in 1947. The imposition of wealth and expenditure tax in 1957 by Mr. T.T. Krishnamachari, the then finance minister, led to a huge fall in the markets. The dividend freeze and tax on bonus issues in 1958-59 also had a negative impact. War with China in 1962 was another memorably bad year, with the resultant shortages increasing prices all round. This led to a ban on forward trading in commodity markets in 1966, which was again a very bad period, together with the introduction of the Gold Control Act in 1963.

 

The markets have witnessed several golden times too. Retail investors began participating in the stock markets in a small way with the dilution of the FERA in 1978. The next big boom and mass participation by retail investors happened in 1980, with the entry of Mr. Dhirubhai Ambani. Dhirubhai can be said to be the father of modern capital markets. Mr. V.P. Singh’s fiscal budget in 1984 was path breaking for it started the era of liberalization. The removal of estate duty and reduction of taxes led to a swell in the new issue market and there was a deluge of companies in 1985. Mr. Manmohan Singh as Finance Minister came with a reform agenda in 1991 and this led to a resurgence of interest in the capital markets, only to be punctured by the Harshad Mehta scam in 1992. The mid-1990s saw a rise in leasing company shares, and hundreds of companies, mainly listed in Gujarat, and got listed in the BSE. There was a meltdown in software stock in early 2000. Mr. P Chidambaram continued the liberalization and reform process, opening up of the companies, lifting taxes on long-term gains and introducing short-term turnover tax. The markets have recovered since then and we have witnessed a sustained rally that has taken the index over 13000.

 

Several systemic changes have taken place during the short history of modern capital markets. The setting up of the Securities and Exchange Board (SEBI) in 1992 was a landmark development. It got its act together, obtained the requisite powers and became effective in early 2000. This history shows us that retail investors are yet to play a substantial role in the market as long-term investors. Retail participation in India is very limited considering the overall savings of households. Investors who hold shares in limited companies and mutual fund units are about 20-30 million. Those who participated in secondary markets are 2-3 million.

 

Capital markets will change completely if they grow beyond the cities and stock exchange centers reach the Indian villages. Both SEBI and retail participants should be active in spreading market wisdom and empowering investors in planning their finances and understanding the markets.

 

PERFORMANCE OF INDIAN CAPITAL MARKET

The growth in Indian capital markets started in 1991 and has been driven by a number of regulatory reforms, liberalization, capital control norms and the continuous monitoring by the regulatory agencies. Market capitalization of companies has increased more than six-fold and trading value has more than tripled. By 2007, India had catapulted to the sixth position in the global list of countries in terms of funds raised through Initial Public Offering (IPO). A USAID report on capital markets in 2007 stated that India was able to achieve this position because of a developed regulatory environment, modern market infrastructure, steadily increasing market capitalization and liquidity, the better allocation and mobilization of resources, a rapidly developing derivatives market, a robust mutual fund industry, and increased issuer transparency.

 

The country’s strong economic growth is changing some of India’s long-term investment themes. Infrastructure and property development are booming, huge gas and oil finds are making an impact on the rupee and there has been a significant growth in both the value and volume of new listings. Just two years ago, the total amount of private equity flows, including venture capital, was US.2 billion. In 2006 this grew to US.5 billion across 299 deals.

 

 

Source: India Venture Capital Association

Between 2003 and 2008, nearly 285 companies raised capital, of which nearly 85 companies raised capital in 2007-08 alone. 2007 was by far the best year for capital markets with the Sensex breaching the 20,000-point barrier and IPOs accounting for more than Rs. 45,000 crore ( billion) of capital raised. However, 2008-09 reversed this trend and proved to be a difficult year throughout the globe. The Sensex shed more than 50%, falling as low as 7,900 points. India’s capital markets have clearly undergone a dramatic shift in the last 10 years.

 

The trends in the global and Indian capital markets have a direct link to the activity levels of capital market lawyers. Indian law firms, Amarchand & Mangaldas & Suresh A Shroff & Co (Amarchand), AZB & Partners (AZB), Luthra & Luthra (Luthra) aggressively expanded their capital markets practices to cater to the upsurge in capital markets. The Indian legal market also witnessed the birth of specialized capital markets firms. S&R Associates (S&R) was established in 2005 after the majority of the team from Pathak & Associates (P&A) branched out to set up a capital markets focused firm. In 2007, Shobhan Thakore, considered by many, including Chambers, as the senior statesman of the Indian capital markets left AZB to set up Talwar Thakore & Associates.

 

 

 

The Indian capital markets growth story was not restricted to the Indian law firms alone as foreign law firms beefed up India practice groups by hiring Indian qualified lawyers as partners and associates and increasingly focused on India related capital markets transactions. UK and US based firms shuffled their talent across the globe and started their India practices either from their home jurisdictions or from Singapore and Hong Kong. In 2008-09, however, the capital markets teams across law firms struggled to keep themselves busy due to the effects of the sub-prime crisis. The banking crisis and Lehman’s bankruptcy added to global woes. India was not far behind in supplying its share of bad news. The chairman of Satyam Computers admitted to fraud, taking the company to the verge of bankruptcy before the Government intervened. During this phase, foreign law firms found the time to further analyze their strategies for India. Some foreign law firms remained undeterred by the falling markets and continued to recruit Indian talent. For instance, Rahul Guptan, capital markets partner at Amarchand, joined Clifford Chance and shifted base to Singapore to build the India capital markets practice.

 

In the recession year of April 2008 – March 2009, only 21 companies were able to raise Rs. 2,271 crore (0 million). However, fiscal year 2010 was a year where markets put the worst behind them and posted a strong growth. As the confidence in the market grew so did the capital raising activities. 108 companies filed the draft red herring prospectus (DRHP) with the Securities Exchange Board of India (SEBI). SEBI’s Capital Market report of March 2010 states that of the 108 companies that approached SEBI, 38 companies have successfully raised capital with 34 companies going public and 4 companies undertaking follow-on public offers (FPO) to raise approximately Rs. 37,125 crore ($ 8.25 billion). The Qualified Institutional Placement (QIP) market was also very active with 58 companies raising approximately Rs. 41,133 crore ($ 9.14 billion). The first quarter of calendar year 2010 has already resulted in 20 successful IPOs, with India witnessing the third largest number of IPOs after US and China, based on the findings in a recent Ernst & Young report.

 

With such an active market, lawyers were kept busy and the capital markets teams were back in action. Companies were keen to raise capital in some form or another and bankers were keen to get the deal flow rolling. This desire for activity gave rise to the QIP as a preferred mode of raising capital. Vandana Shroff, Partner, Amarchand, says “India’s growth story is well documented. Being a capital deficient country, there will continue to be a need to raise large pools of capital which can be fulfilled by approaching the capital markets in India and internationally, provided that we do see some length of stability of the international capital markets”.

 

Bar & Bench analyses the legal side of the Indian capital markets practice and provides a set of rankings of the Indian and foreign law firms which have advised the companies and the underwriters in the capital raising process. The rankings are based on various factors such as number and value of transactions. In this report, we also bring to you the insights of leading individuals including partners at Indian and foreign law firms and in-house counsel who have experience of working in the capital markets in India.

 

MARKET CAPITALISATION

Market capitalisation, which indicates size of the capital market, investor confidence and discounted future earnings of the corporate sector, crossed trillion (BSE stocks, March 28, 2007). Globally, the capital market is the 14th largest in terms of capitalisation. Market capitalisation ratio is expected to rise from less than 30 per cent to over 60 per cent, as in most other emerging markets.

There are diverse players in the Indian market — retail investors, mutual funds and FIIs, including several sub-categories — pension funds, hedge funds and investment companies. Protecting the interests of investors is difficult because those of the retail Indian investors, mutual funds and foreign investors in the market might not always converge.

STREAMLINING THE CAPITAL MARKET

The capital market has played a catalytic role in the 9 per cent growth rate the country has achieved. Unlike other markets preoccupied with increasing the number of listed companies, India needs to drastically prune the number of listed companies to ensure that only companies with traded stocks, reasonable volumes and better price discovery remain, while providing other platforms for smaller companies. Foreign listings on the NSE and the BSE must also be allowed.

SEBI’s efforts at creating heightened awareness of full disclosure and transparency have succeeded only partially. This necessitates shifting to National Listing Authority, empowering investors on the lines of US class action, using information technology and public disclosure aggressively to improve surveillance, adopting a more aggressive pro-competitive policy, introducing effective and competitive securities lending system and broad-basing derivative markets.

Fundamental institutional changes have drastically reduced transaction costs and significantly improved efficiency, transparency and safety. Policies and procedures relating to fair, efficient and transparent markets, investor education, investor protection, reduction of systemic risk and exposure norms, cumulative margins and rising corporatisation of brokers have also helped. However, inadequate development of the debt market hampers accurate pricing of current and future assets, and PFs/pensions are not allowed to invest in equities.

SEBI’s bill clarified the role of the ‘Department of Company Affairs’ and acquired the power to debar directors and trace and attach assets of those companies. SEBI’s guidelines (effective March 2000) started Internet-broking on Indian securities to enhance transparency and reduce infirmities in Indian capital market transactions. The creation of Investor Protection Fund (October 2001) under Section 205C of the Companies Act ensures the recovery of investments if and when companies default.

The functioning of the stock market in India continues to be fraught with the danger of frauds and scandals triggered by rigging, cornering of shares and manipulation. Hence, the market must be insulated from “crises”. Since such crises cause systemic damage, prevention and detection of frauds must rely heavily on market discipline, swift prosecution and effective punishment. With sustained growth, rising exports, increasing corporate earnings, rising investment rates and moderate inflation, the capital market is poised for growth.

Growth requires wide distribution of ownership of equity, both by direct participation in capital market, and indirectly, through financial institutions, such as mutual funds, pension funds and insurance companies to enhance long-term savings and facilitate long-term financing. This necessitates an efficient and transparent price discovery process with high disclosure and regulatory standards with sound liquidity and risk management. Establishment of a single clearing corporation for money, debt and foreign exchange and provision of demutualisation will widen and deepen capital markets. A robust insurance sector with higher capital base and more diverse products would generate long-term funds for investment in debt market and release resources for investment, particularly for infrastructure.

Globally, markets are governed by competition, convergence and coordination. But fragmentation exists in India. The convergence with international best practices regarding clearing and settlement, payment systems and funds transfer, governance, disclosure and transparency require removal of insider trading, information asymmetry, and inadequate and delayed information.

CONCLUTION

In the ultimate analysis, a vibrant, well-developed capital market is a function of economic growth and a reflection of the financial system. Growth and sustainability of the market require careful management of volatility risk and risk of contagion to check sudden withdrawal of highly speculative, short-term capital. There are also important issues of adroit management of liquidity risk, clearance and settlement risk, currency risk and disclosure and legal infrastructure. Leveraging India’s capital market requires improved corporate governance, reduced market concentration, availability of the market capitalisation for trading and enhanced role of mutual funds. Protection of retail investors, a modernised capital market with transparent operations, a developed corporate debt market, regulatory support and development of Mumbai as an international financial hub would help deepen the stock market and make them efficient and stable.

References:

Endo, Tadashi. 1998. The Indian Securities Market—A Guide for Foreign and Domestic Investors. Vision Books. India.
India Market Update, 2007
Market Wisdom Investor Empowerment Series, Lesson No. 25
Report of India Venture Capital Association – October 2007
Reserve Bank of India. Report on Currency and Finance, various issues.
Securities and Exchange Board of India. Annual Report. India: SEBI.
www.barandbanch.com

 

Capital market in india

: Explain the role of capital market in the economic development of a nation?

 

Ans: SIGNIFICANCE OF CAPITAL MARKETS IN INDIA

 

*INTRODUCTION:

 

~ Capital market is the market for leading and borrowing of medium and long term funds.

 

~ The demand for long-term funds comes from industry, trade, agriculture and government (central and state).

 

~ The supply for funds comes from individual savers, corporate savings, banks, insurance companies, specialized financial institutions and government.

 

~ Capital market has three different categories:-

 

i) Government securities market:

 

^ It is also called Gilt-edged market.

 

^ It deals in interest bearing and dated government securities.

 

^ This market is regulated by the RBI.

 

ii) Corporate Debt Market

 

This market deals in :

 

^ Binds floated by public sector units, nationalised banks and financial institutions.

 

^ Debentures floated by corporates.

 

iii) The Equity Market:

 

^ Corporates raise preference / equity share capital in this market.

 

^ These shares can be sold / purchased and thus provide liquidity to markets.

 

*SIGNIFICANCE:

 

~ A sound and efficient capital market is extremely vital for the economic development of a nation.

 

~ So, the significance of capital market has increased.

 

~ The following points clearly bring out the role and significance of capital market in India.

 

i)CAPITAL FORMATION:

 

~ Capital market encourages capital formation as it ensures speedy economic development. The process of capital formation includes collection of saving effective mobilisation of these savings for productive investment.

 

~ Thus three distinctive inter-related activities i.e. collection of savings, mobilisation of savings and investment lead to capital formation in the country.

 

~ The volume of capital formation depend s on the efficiency and intensity with which these activities are carried on.

 

ii) ECONOMIC GROWTH:

 

~ Capital market plays a vital role in the growth and development of an economy by channelising funds in developmental and productive investments.

 

~ The financial intermediaries channel funds into those investments that are more important for economic development.

 

iii) INDUSTRIAL DEVELOPMENT:

 

~ Capital market promotes industrial development and motivates industrial entrepreneurship.

 

~ It provides cheap, adequate and diversified funds for industrial purposes such as expansion, modernisation, technological upgradation, establishment of new units, etc.

 

~ It also provides services like provision of underwriting facilities, participation in equity capital, credit-rating, consultancy services, etc.

 

vi) MODERNISATION AND REHABILITATION OF INDUSTRIES:

 

~ Capital markets also contribute towards modernisation and rehabilitation of industries.

 

~ Developmental financial institutions like IDBI, IFCI, ICICI, etc provide finance to industries to adopt modern techniques and new upgraded machinery.

 

~ They also participate in the equity capital of industries.

 

v) RIVIVAL OF SICK UNITS:

 

~ Commercial and financial institutions provide adequate funds to viable sick unit to overcome their industrial sickness.

 

~ Bank and FIs may also write off a part of the loan or re-schedule the loan to offer payment flexibility to weak units.

 

vi) TECHNICAL ASSISTANCE:

 

~ The financial intermediaries in the capital market stimulate industrial entrepreneurship by providing technical and advisory services like preparation of feasibility reports, identifying growth potential, and training entrepreneurs in project management.

 

~ This promotes industrial investment and leads to economic development.

 

vii) DEVELOPMENT OF BACKWARD AREAS:

 

~ Capital markets provide funds for projects in backward area and facilitate their economic development.

 

~ Long-term funds are also provided for development projects in backward / rural areas.

 

viii) EMPLOYMENT GENERATION:

 

~ Capital markets provide Direct Employment in capital market related activities like stock markets, banks and financial institutions.

 

~ Indirect Employment is provided in all the sectors of the economy through various funds disbursed for developmental projects.

 

ix) FOREIGN CAPITAL:

 

~ Capital markets make it possible to generate foreign capital by enabling Indian firms to raise capital from overseas market through bonds and other securities.

 

~ Such foreign exchange funds have a great impact on the economic development of the nation.

 

~ Moreover, foreign direct investments (FDIs) also bring in foreign capital as well as foreign technology that leads to greater economic development.

 

x) DEVELOPMENT OF STOCK MARKETS:

 

~ Capital markets lead to development of stock markets by encouraging investors to invest in shares and debentures and to trade in stocks.

 

~ FIIs are also allowed to deal in Indian stock exchange.

 

xi) FINANCIAL INSTITUTIONS:

 

~ Financial institutions play a major role in capital markets.

 

~ They provide medium / long term loan to industrial and other sectors and also undertake project feasibility studies and surveys.

 

~ They refinance commercial banks and rediscount their bills of exchange.

 

~ They provide merchant banking services.

 

~ They subscribe to equity capital of the firms.

 

xii) INVESTMENT OPPORTUNITY:

 

~ Capital markets provide various alternative sources of investment to the people.

 

~ People can invest in shares and debentures of public companies and earn good returns.

 

xiii) INVESTMENT IN INDUSTRIAL SECURITIES:

 

~ Secondary market in securities encourage investors to invest in industrial securities by providing facilities for continuous, regular and ready buying and selling of these securities.

 

~ This facilitates industries to raise substantial funds from various sectors of the economy.

 

xiv) RELIABLE GUIDE TO PERFORMANCE:

 

~ Capital market serves as a reliable guide to the performance of corporate institutions.

 

~ It values companies accurately and thus promotes efficiency.

 

~ This leads to efficient resource allocation and economic development.

 

*CONCLUSION:

 

~ Thus we can say that capital markets play a crucial role in the economic development of a nation.

 

~ A sound and efficient capital market is one of the most instrumental factors in the development of a nation.

 

Q2: Explain the structure of Capital Market in India?

 

Ans: STRUCTURE OF CAPITAL MARKET IN INDIA.

 

*INTRODUCTION:

 

~ Capital market is the market for lending and borrowing of medium term and long term funds.

 

~ A sound and efficient capital market can bring about speedy economic development of a nation.

 

*STRUCTURE:

 

~ Indian Capital Market is broadly composed of:

 

i) Gild Edged Market / Government Securities Market.

 

ii) Corporate / industrial Securities market.

 

iii) Long Term Loans market / Developmental Financial Institutions.

 

iv) Financial Intermediaries.

 

i)GILD-EDGED MARKET:

 

~ This market deals in government and semi government securities and so it is also called ‘Government securities market’.

 

~ This market deals with securities such as bonds issued by Central / State Government and these securities carry fixed interest rates.

 

~ The investors in government securities are mainly financial institutions like commercial banks, IFCI, LIC, GIC, SFC, SIDC, Provident funds, RBI and individuals. These institutions are often compelled by the law to invest a certain % of their funds in government securities.

 

~ RBI plays a very important role in this market.

 

ii) CORPORATE / INDUSTRIAL SECURITIES MARKET;

 

~ The Corporate Security Market provides long – term funds to the companies.

 

~ It deals with shares and debentures of old and new companies.

 

~ This market is further divided into:

 

^ Primary market (new issues market)

 

^ Secondary Market (old issues market).

 

# PRIMARY MARKET:

 

^ It is a market for new issues. It deals with those securities that are issued to the public for the first time. So, it is also called New Issues Market.

 

^ It deals with the raising of fresh capital in the form of equity shares, preference shares, debentures, bonus, right issues, deposits, etc.

 

^ It includes all institutions dealing in the issue of fresh claims.

 

^ Resources in equity market can be raised / mobilised through: Equity Issues (domestic and external)

 

Debt issues (domestic and external)

 

^ Domestic equity issues include equity shares, preference shares, right issues and units of mutual funds in the country.

 

^ External equity issues include equity shares through the issue of Global Depository Receipts (GDR) and

 

American Depository Receipts (ADR).

 

^ Domestic debt issues include fixed deposits, bonds, debentures (convertible and non-convertible)

 

^ External debt issues are funds mobilised in the form of debt from overseas.

 

# SECONDARY MARKET:

 

^ The secondary market deals with securities that are already issued by companies.

 

^ It facilitates trading in securities and operates through stock exchanges.

 

^ The secondary market helps to provide liquidity and marketability to the outstanding equity and debt instruments.

 

^ It provides immediate valuation of securities and thus induces company to perform efficiently.

 

^ The secondary market has three types of stock exchanges that provide liquidity to the investor through trading transactions (buying and selling of securities) with the help of brokers and other financial intermediaries. The 3 types of stock exchanges are: Regional Stock Exchange.

 

: National Stock Exchange.

 

: Over the Counter Exchange of India.

 

^ Out of the 23 recognised stock exchanges in India, The National Stock Exchange (NSE) and The Bombay Stock Exchange (BSE) are the two premier stock exchanges.

 

^ They operate under the rules and regulations of the Government and SEBI.

 

^ Thus, the secondary market in India deals in scrips of a large number of listed companies and provides a world class trading due to wide range of product availability with a fast growing derivatives market.

 

iii) LONG TERM LOANS MARKET / DEVELOPMENT FINANCIAL INSTITUTIONS:

 

~ Developmental financial institutions were established to provide medium term / long term loans to the industrial sector.

 

~ These institutions include Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (ICICI), Industrial Development Bank of India (IDBI), Industrial Investment Bank of India (IIBI), The Export and Import Bank of India (EXIM BANK), State Finance Corporations (SFCs), state Industrial Corporations (SIDCs), etc.

 

~ The long term loans obtained from these institutions can be used for expansion and modernisation

 

~ These institutions also subscribe to shares and debentures of new /old companies and underwrite new issues.

 

~ These institutions raise funds by way of term deposits, Certificates of deposits and borrowings.

 

~ Long term loans can be classified into: Term Loans Market

 

: Mortgages Market

 

: Financial Guarantees Market.

 

*Term loans market: Developmental financial institutions provide term loans for a period of 1 year.

 

^ Thus, they encourage new entrepreneurs, help in identifying investment opportunities and support modernisation efforts.

 

*Mortgages market: financial institutions provide loans against security of immovable assets such as land and building.

 

^ The transfer of interest in an immovable property to the lender is called ‘mortgage’.

 

*Financial guarantee market: Financial Institutions provide financial guarantee on behalf of their clients.

 

^ Incase the client does not perform the contract appropriately; a penalty is imposed on the client. If the client fails to pay the imposed penalty the financial institution issuing the guarantee is held liable.

 

iv) FINANCIAL INTERMEDIARIES:

 

~ They comprise of merchant banks, mutual funds, leasing companies, venture capital companies, etc.

 

~ Merchant banks manage and underwrite new issues, and advise corporate on various financial aspects.

 

~ Leasing companies provide funds for purchasing plant and machinery.

 

~ Mutual funds mobilise savings of the people and invest them in stock markets.

 

~ Venture capital companies provide financial support to new ideas and technology.

 

*CONCLUSION:

 

~ Thus the capital market structure in India is complex and covers wide range of activities.

 

~ Through provision of long term loans, the capital market brings about effective functioning of various sectors of the economy. This is very instrumental for the economic development of a nation.

 

Q3) Which factors are responsible for the growth of capital markets in India?

 

Ans: FACTORS RESPOSIBLE FOR THE GROWTH OF CAPITAL MARKRTS IN INDIA.

 

*INTRODUCTION:

 

~ Capital markets deal in lending and borrowing of long term and medium term funds.

 

~ So, capital markets play a significant role in the economic development of a nation.

 

~ Capital markets in India have grown considerably over the years and this has been very crucial for the nation’s economic development.

 

~ Various factors are responsible for the growth of capital markets in India.

 

*FACTORS RESPONSIBLE L,DNKLFOR THE GROWTH OF CAPITAL MARKETS IN INDIA:

 

i)GROWTH OF STOCK EXCHANGES IN INDIA:

 

~ Capital Markets originated with the setting up of Bombay Stock Exchange, followed by the formation of stock exchanges in Ahmedabad, Calcutta and Madras.

 

~ At present, there about 24 stock exchanges in India recognized by the Government, The National Stock Exchange (NSE) being the largest in the country, followed by the Bombay Stock Exchange (BSE).

 

~ The stock exchanges lead to growth of capital markets as they make it possible to: List the shares of public companies trade in share.

 

ii) GROWTH OF FINANCIAL INSTITUTIONS:

 

~ Growth of developmental financial institutions in India has given a boost to capital markets.

 

~ Developmental financial institutions raise funds by way of bonds and securities and then lend such funds to corporate firms.

 

~ They also subscribe to the issue of shares and debentures in the primary markets and trade in secondary markets.

 

~ These institutions include Industrial Finance Corporation of India (IFCI), Industrial Development Bank of India (ICICI), Industrial Development Bank of India (IDBI), Industrial Investment Bank of India (IIBI), The Export and Import Bank of India (EXIM BANK), State Finance Corporations (SFCs), state Industrial Corporations (SIDCs), etc.

 

iii) GROWTH OF MUTUAL FUNDS:

 

~ The investment by mutual funds has also enhanced the capital markets in India.

 

~ The first mutual fund to be set up in India was the Unit Trust of India (UTI) in 1964.

 

~ Mutual funds collect funds from the people and invest them in primary / secondary markets.

 

iv) GROWTH OF MERCHANT BANKING IN INDIA:-

 

~ Merchant Banking plays an important role in the capital market.

 

~ It provides a number of services like capital issue market, provision of consultancy services, corporate restructuring etc.

 

~ Merchant Bank services were first initiated in India by the Grindlays Bank (1967) followed by the Citibank (1970).

 

v) DEVELOPMENT OF CREDIT RATING AGENCIES:

 

~ The development of Credit rating agency in India was CRISIL.

 

~ Other credit rating agencies are CARE, ICRA, etc.

 

~ Investment in companies depend on the credit rating of the company.

 

vi) DEVELOPMENT OF VENTURE CAPITAL FUNDS:

 

~ Venture Capital is the investment made in a highly risky project with a view to earn a high rate of return.

 

~ Venture Capital proved profitable for those firms who find in difficult to raise funds from primary market or obtain medium / long term loans from banks or financial institution.

 

vii) SETTING UP OF SEBI:

 

~ SEBI (The Securities and Exchange Board of India) was set up by the Government of India to regulate the activities connected with the marketing of securities and investments in the capital market.

 

~ The main objective of the SEBI is to protect the interest of the investors in the primary and secondary capital markets.

 

~ this has helped the growth of capital market in India.

 

viii) THE NATIONAL SECURITIES CLEARING CORPORATION LTD (NSCL):

 

~ The NSCL was setup to guarantee all trades on the NSE (National Stock Exchange).

 

~ NSCL interposes between parties to the trade to ensure that every trade on the NSE is freed from the risk of counterparty defaulting.

 

~ This helps to avoid the risk of payment crisis on the NSE.

 

ix) GENERAL AWARENESS:

 

~ There is a general awareness about the capital market among the people.

 

~ Massive publicity campaigns and public issue of shares and debentures has created this awareness among the people.

 

~ Thus, more and more people are investing money in the primary and secondary capital markets and also in the bonds issued by FIs and other organizations.

 

x) CORPORATE GOVERNANCE:

 

~ Corporate Governance has been very conducive to the growth of capital market in India.

 

~ It ensures proper governance on the part of Board of Directors and good management by the companies to protect the interest of its stakeholders.

 

~ The code of corporate governance has been divided into mandatory and non-mandatory requirement on the part of the companies listed on the stock exchange.

 

xi) GROWTH OF MULTI-NATIONAL COMPANIES (MNCs):

 

~ Post –liberalization a lot of MNCs have evolved in India.

 

~ MNCs need long-term / medium term funds for setting up new projects or for expansion and modernisation.

 

~ They collect these funds through capital markets by issue of shares and debentures or through loans from banks and financial institutions.

 

xii) PUBLIC CONFIDENCE:

 

~ A good number of the members of the public have started developing confidence and trust in the capital market.

 

~ They purchase bonds issued by financial institutions and also invest in primary and secondary capital markets.

 

xiii) GROWTH OF ENTREPRENEURS:

 

~ The growth of entrepreneurs has resulted in more demand for short-term and long-term funds.

 

~ Financial institutions, banks and stock markets enable entrepreneurs to raise the funds required by them.

 

~ This has also led to the growth of capital markets in India.

 

Q4: Write a note on Capital Market Reforms?

 

Ans: CAPITAL MARKET REFORMS:

 

*INTRODUCTION:

 

~ Capital market is the market for borrowing and lending of medium term / long term loans.

 

~ A sound an efficient capital market act as a catalyst in the process of economic development of a nation.

 

~ So, the Government of India and the SEBI introduced various reforms in the capital market to strengthen it and make it more effective.

 

*REFORMS:

 

~ The reforms in the capital market can be explained with respect to: Primary market reforms.

 

: Secondary market reforms

 

# PRIMARY MARKET REFORMS:

 

~ The following reforms were taken to develop and strengthen primary capital market in India:-

 

i) ABOLITION OF CONTROLLER OF CAPITAL ISSUE:

 

~ The Capital Issues (Control) Act, 1947 governed capital issue in India.

 

~ The Narshimam Committee recommended the abolition of the Controller of Capital issues and induced SEBI to take over the regulatory and administrative functions of the CCI.

 

~ Thus, companies are allowed to approach the capital market without prior consent of the Government, provided all documents are cleared by SEBI.

 

ii) SETTING UP OF SEBI:

 

~ Securities And Exchange Board Of India (SEBI) became a statutory body and was given wide regulatory powers.

 

~ SEBI has become an important part of the financial regulatory system in the country.

 

iii) DISCLOSURE STANDARDS:

 

~ It is mandatory for companies to disclose all material facts and specific risk factors associated with their projects.

 

~ SEBI has also introduced a code of advertisement for public issues for ensuring fair and truthful disclosures.

 

iv) FREEDOM TO DETERMINE THE PAR VALUE OF SHARES:

 

~ SEBI has permitted companies to determine the par value of shares issued by them.

 

~ Thus, companies can issue IPOs through “book building” process.

 

v) UNDERWRITING MADE OPTIONAL:

 

~ In India, underwriting of shares is made optional to reduce the cost of public issue.

 

~ However, if the issue is not underwritten and the issuer fails to collect 90% of the amount offered to the public, the entire amount collected should be refunded to investors.

 

vi) ENTRY OF FOREIGN INSTITUTIONAL INVESTORS: (FIIs)

 

~ SEBI has permitted the foreign institutional investors to invest in the Indian Capital Markets.

 

~ FIIs such as mutual funds and pension funds can invest in equity shares and debt market as well as in dated Government Securities and treasury bills.

 

vii) ACCESS TO GLOBAL MARKET FUNDS:

 

~ With the introduction of the Foreign Exchange Management Act 1999, Indian companies can raise funds from global finance markets and benefit from the lower cost of funds.

 

~ Indian companies can issue American Depository Receipts (ADRs), Global Depository Receipts (GDRs) , Foreign Currency Convertible Bonds (FCCBs) and External Commercial Borrowings.(ECBs)

 

~ They can list their shares on Foreign Stock Exchanges.

 

~ Also, Indian financial system is opened up for investment of foreign funds through NRIs, FIIs and OCBs (Overseas Corporate Bodies).

 

viii) BAN ON MERCHANT BANKING CARRYING FUND BASED ACTIVITIES:

 

~ Merchant Bankers are prohibited from undertaking funds based activities other than those related exclusively to the capital market.

 

~ The activities undertaken by Non-Banking Finance Companies (NBFCs) such as accepting deposits, leasing, bill discounting, etc cannot be carried out by merchant bankers.

 

ix) INTERMEDIARIES UNDER SEBI’s REGULATION:

 

~ Financial Intermediaries have been brought under the purview of the SEBI.

 

~ These include merchant bankers, mutual funds, portfolio managers, underwriting agents, share transfer agents, registrars to an issue, bankers to an issue, debenture trustees, custodian of securities and venture capital funds.

 

x) CREDIT-RATING AGENCIES:

 

~ Various credit rating agencies such as Credit Rating and Information Services of India Ltd. (CRISIL), Investment Information and Credit Rating Agency (ICRA), Credit Analysis and Research Ltd (CARE), etc were set up by the Government to meet the emerging needs of the growing capital markets.

 

~ Credit Rating Agencies provide rating to the issue of securities in the primary markets.

 

~ This imposes a healthy discipline on the borrowers and provides guidance to the investors.

 

~ They also help financial intermediaries in discharging their functions related to debt issues.

 

# SECONDARY MARKET REFORMS:

 

~ A number of reforms were initiated by the Government and the SEBI for the growth of secondary capital market in India.

 

~ The following are the important reforms:

 

i) SETTING UP OF NATIONAL STOCK EXCHANGE (NSE):

 

~ The National Stock Exchange was set up in 1992 and it started its operations in 1994.

 

~ It was sponsored by the IDBI. The co-sponsorers were other developmental financial institutions, LIC, GIC, Commercial Banks, SBI, Stock Holding Corporation of India LTD, etc

 

~ The NSE was set up to provide a nation-wide trading facility in equities, debt, instruments and hybrids.

 

~ It also facilitated equal access to investors across the country by providing a fair, efficient and transparent securities trading system.

 

~ It also offered shorter settlement cycles and book entry settlement system.

 

~ These measures brought the Indian Stock market at par with international markets.

 

~ At present, the NSE has spread its business in 200 cities with more than 1000 terminals and its ranks 3rd among the biggest exchange in the world.

 

ii) OVER THE COUNTER EXCHANGE OF INDIA (OTCEI):

 

~ Over the Counter Exchange of India was set up in 1992 by a consortium of leading financial institutions in India like IDBI, ICICI, LIC, UTI, IFCI, etc.

 

~ It is an electronic national stock exchange that lists entirely new set companies which will not be listed on other Stock exchanges i.e. the companies listed on OTCEI cannot be listed on any other stock exchanges.

 

~ Companies with issued capital from Rs 30 lakhs to Rs 25 crores.

 

~ OTCEI gives an access to small and medium sized companies to capital market as well as a convenient mode of investment to investors.

 

~ It eliminates the problem of illiquid securities, delayed settlements and unfair prices faced by investors.

 

iii) DISCLOSURE AND INVESTOR PROTECTION (DIP) GUIDELINES FOR NEW ISSUES:

 

~ SEBI has given DIP guidelines to govern the new issue activities so as to remove the systematic deficiencies and to protect the interests of investors.

 

~ Companies issuing capital in the primary market are now required to disclose all material facts and specify risk factors with their projects.

 

~ If the company issues IPO through ‘book-building’, it will have to disclose the price, the issue size and number of securities to be offered to the public.

 

iv) SCREEN BASED TRADING:

 

~ The Indian Stock Exchanges underwent modernisation with computerised Screen Based Trading System (SBTS).

 

~ It electronically matches orders on a strict price / time priority.

 

~ It considerably reduces time, cost, risk of error and fraud and thereby improves operational efficiency.

 

~ This trading system also provides complete on line market information and thus increases the depth and liquidity of the market.

 

v) CORPORATION AND DEMUTUALISATION OF STOCK EXCHANGES:

 

# Corporatisation: -

 

^ BSE has ceased to be an Association of persons and became a company under the Companies Act.

 

^ This leads to segregation of ownership, management and trading rights from each other.

 

^ The change in ownership is expected to make BSE a modern, professionally managed, transparent, competitive and an efficient stock exchange.

 

# Demutualisation:-

 

^ Demutualisation of BSE is in process whereby the BSE will be converted into a join stock company.

 

^ It will change from ‘not-for-profit’ organisation to a ‘for profit’ organisation. This will clearly strengthen the capital markets.

 

vi) DEPOSITORY SYSTEM:

 

~ A major reform in the Indian Stock Market has been the introduction of depository system and scripless trading mechanism.

 

~ This system overcomes problems based on physical transfer of securities like inordinate delays, bad deliveries, counterfeit scrips, forged certificates, wrong signatures, etc.

 

~ Depository is an organisation that holds the securities of shareholders in electronic form, transfers securities between account holders, facilitates transfer of ownership without handling securities, etc.

 

~ Dematerialisation of share certificates through depositories is an essential aspect of securities with speed, accuracy and security.

 

~ National Securities Depositories LTD. (NSDL) and Central Depositories Services LTD ( CDSL) have been established for this purpose.

 

vii) ROLLING SETTLEMENT:

 

~ ‘Rolling Settlement’ is an important measure to improve the integrity and efficiency of the securities market.

 

~ The shift from the traditional settlement to rolling settlement is a welcome change in the stock market.

 

~ Under the rolling system all trades executed on a trading day (T) have to be settled after certain days (N).

 

~ This is called ‘T+N’ rolling settlement.

 

~ In April 2003, the NSE introduced T+2 rolling settlement.

 

~ This has considerably reduced undue speculation in the market.

 

viii) INVESTOR PROTECTION MEASURES:

 

~ The SEBI has introduced an automated complaints handling system to deal with investor complaints.

 

~ It spreads awareness among the investors on various issues related to the securities market and their rights and remedies.

 

~ The Government has also set up the IEPF (Investor Education and protection fund) that will be utilized for promotion of awareness amongst investors and protection of their interest.

 

ix) THE NATIONAL SECURITIES CLEARING CORPORATION LTD (NSCL):

 

~ The NSCL was set up in 1996 to guarantee all trades in NSE.

 

~ The NSCL is responsible for post-trade activities of the NSE like clearing and settlement of trades and risk management.

 

~ It interposes between parties to trade on the NSE.

 

~ It, thus, avoids the risk of payment crisis on the NSE.

 

x) DERIVATIVE TRADING:

 

~ Derivatives are contracts between counterparties whose value is derived from the value of the underlying asset like equity, forex, etc.

 

~ Financial markets are highly volatile due to fluctuations in asset prices.

 

~ So the investors resort to derivative trading whereby they lock-in asset prices and reduce the price risks.

 

~ At present, there are four equity derivative products in India:

 

^ Stock options

 

^ Stock futures

 

^ Index options

 

^ Index futures.

 

~ Derivatives trading is permitted only on the NSE and the BSE.

 

xi) TRADING IN CENTRAL GOVERNMENT SECURITIES:

 

~ Trading in Central Government Securities has been introduced since Jan 2003 so as to encourage wider participation of all classes of investors, including retail investors.

 

~ Trade in government securities can be carried out throughout the country through screen-based trading system of stock exchanges.

 

~ Retail investors can now buy and sell govt- securities participation in retail market is open to individuals, firms, companies, corporate bodies, institutions, or any other entity approved by the RBI.

 

xii) ENTRY OF FIIs:

 

~ Foreign Institutional Investors (pension funds, mutual funds, investment trust, portfolio management companies, etc.) have been allowed to invest in Indian capital markets.

 

~ However, they have to be registered with the SEBI.

 

xiii) PAN MADE MANDATORY:

 

~ PAN has been made mandatory since Jan 2007 so as to strengthen the ‘know your client’ norms and to facilitate sound auditing in the securities market.

 

~ It is mandatory for operating a beneficiary Owner Account and for trading in cash segments.

 

xiv) REGULATION OF MUTUAL FUNDS:

 

~ Emergence of diversified mutual funds is an important development of Indian Capital Market.

 

~ It mobilises the savings of the general public and invests them in stock market securities.

 

~ Thus, they have emerged as significant avenues for finance and a notable intermediary in the Indian capital market.

 

~ SEBI supervises and regulates the working of mutual funds.

 

xv) STOCK EXCHANGES PERMITTED TO SET TRADING HOURS:

 

~ Stock Exchanges have been permitted to set trading hours (in cash and derivative segments).

 

~ However, the trading hours should be between 9.00a.m to 5.00p.m.

 

~ Corporate Governance and buy back of shares are other secondary market reforms.

 

*CONCLUSION:-

 

~ Thus, the reforms in the capital market have been conducive to its growth and development.

 

~ Also, it has made the capital markets have shown greater efficiency and now provide world class trading and settlement systems.

 

~ This leads to speedy development of an economy.

 

Q5: Write a note on SEBI?

 

Ans: SECURITIES AND EXCHANGE BOARD OF INDIA

 

*INTRODUCTION:

 

~ The Securities and Exchange Board of India (SEBI) was established as a non-statutory organisation but it received its statutory status in January 1992.

 

~ SEBI has wide regulatory powers and is a very important constituent of the financial regulatory network of India.

 

~ In fact, it is under the overall control of the Finance Ministry of the country.

 

~ SEBI aims at protecting the interest of investor, brining professionalism in the working of intermediaries in the capital markets and creating a good financial environment in the markets.

 

*ROLE OF SEBI:

 

i)PROMOTION AND DEVELOPMENT OF CAPITAL MARKET:

 

~ The promotion and development of the capital market is one of the most important roles of SEBI.

 

~ It regulates the business in stock exchanges and other securities market and prevents trading malpractices.

 

~ It creates a healthy financial environment for the development of capital markets.

 

ii) GUIDELINES ON CAPITAL ISSUES:

 

~ As a part of its regulatory role, SEBI issues guidelines in respect of matters related to the issue of capital.

 

~ These include information disclosures, operational transparency and investor protection, development of financial institutions, pricing of issues, preferential issues, etc.

 

iii) REGULATES WORKING OF MUTUAL FUNDS:

 

~ In order to regulate the working of mutual funds, SEBI has laid down rules and regulations.

 

~ All mutual have to comply with the regulations paid down by the SEBI.

 

~ Necessary modifications are made in the regulations from time to time.

 

iv) REGULATES MARCHANT BANKING:

 

~ SEBI has laid down regulations on merchant banking activities in India.

 

~ They are in respect of registration, code of conduct, submission of half yearly results, etc.

 

v) REGULATES STOCK BROKERS ACTIVITIES:

 

~ SEBI regulates the activities of brokers and sub-brokers.

 

~ No broker / sub-broker is allowed to buy, sell or trade in securities without registration with the SEBI.

 

vi) PORTFOLIO MANAGEMENT:

 

~ SEBI also regulates the working of portfolio managers.

 

~ No person / institution can operate as a portfolio manager without registration with the SEBI.

 

~ They have to follow relevant regulations.

 

vii) REGULATES TAKE-OVER / MERGERS:

 

~ SEBI has issued guidelines to be followed by corporations at the time of mergers / take – overs.

 

~ These guidelines protect the interest of investors in case of take-overs or mergers.

 

viii) RESTRICTION ON INSIDER TRADING:

 

~ SEBI prohibit insider trading in order to prevent price manipulations.

 

~ SEBI has also banned negotiated and cross deals to ensure greater market transparency.

 

ix) PROTECTION OF INTEREST OF INVESTORS:

 

~ SEBI aims at protecting the interest of investors in securities and it has taken various measures for the same.

 

~ It spreads awareness among investors and provides them a high degree of protection of their rights and interests through adequate, accurate and authentic information on a continuous basis.

 

x) INVESTOR’S EDUCATION:

 

~ SEBI educates investors about securities market.

 

~ It spreads awareness among investors on various issue related to securities market and on their rights and remedies.

 

xi) INVESTOR’S GRIEVANCES REDRESSAL:

 

~ SEBI has introduced automated complaints handling system to deal with investor complaints.

 

~ The Investor Grievances Redressal and Guidance Division of SEBI helps investors who want to make complaints to SEBI against listed companies.

 

xii) PRIMARY MARKET POLICY:

 

~ SEBI looks after all the policy matters and regulatory issues related to primary markets.

 

~ These include vetting of prospectuses and letters of offer for public and right issues, co-ordinating with primary market policy, registration, regulation and monitoring issue related intermediaries.

 

xiii) SECONDARY MARKET POLICY:

 

~ SEBI is responsible for all policy and regulatory issues for secondary market.

 

~ It is also responsible for registering and monitoring of members of stock exchanges.

 

~ It also inspects all stock exchanges and regulates non-member intermediaries such as sub-brokers.

 

xiv) INSTITUTIONAL INVESTMENT POLICY:

 

~ SEBI registers, regulates and monitors FIIs and domestic mutual funds.

 

xv) MOBILISATION OF RESOURCES:

 

~ SEBI facilitates efficient mobilisation and allocation of resources through the securities market.

 

~ It stimulates competition and encourages innovations.

 

*POLICY MEASURES BY SEBI:

 

i) It prohibits fraudulent and unfair trade practise relating to securities.

 

ii) It imposes penal margins on net undelivered portion at the end of the settlement.

 

iii) It has issued guidelines to tighten entry norms for companies accessing capital market.

 

iv) SEBI has allowed stock exchanges to expand their on-line screen based trading terminals.

 

v) It has notified ‘Custodian of Securities Regulations’ and ‘Depositories and Participant Regulators’ to contain prudential norms.

 

vi) It has taken various investor protection measures.

 

vii) It has tightened norms for share transfer.

 

viii) It has prohibited ‘insider trading’ and ‘badla’.

 

ix) It has taken various steps to improve corporate Governance.

 

x) It has allowed companies to raise funds from abroad through ADRs, GDRs, FCCBs and ECBs,

 

xi) It registers and regulates the intermediaries associated with the capital market.

 

xii) It has issued guidelines for Anti Money Laundering measures.

 

*CONCLUSION:

 

~ Thus, the SEBI’s task is challenging and complex SEBI has taken various measures to bring sufficiency in the capital markets leading to growth and development of the economy

 

December 6, 2010

Related Venture Capital Raising Regulations Articles

How the proliferation of bankruptcy has impacted the Directors and Officers market place and how Venture Firms can protect their Outside Directors?

Venture Capital, one of the main drivers of private investment in this country, has seen radical changes to the business landscape in the past three years. The economic downturn has forced many of their portfolio investments to file for bankruptcy costing the firms hundreds of millions of dollars, not to mention their limited partners and the founders of their invested entities. What happens when a company is shuttered? Who is responsible for the wind down? What happens to the founders and employees? What about the Venture firm, are they held accountable? The ripple effect of a portfolio company’s bankruptcy can have a myriad of implications for the various stakeholders in the game and raises important questions about the insurance structure in place to help save and protect the Venture firms’ assets as well as the assets of the portfolio company’s Directors and Officers.

After a company fails, the founder and employees are immediately off to find their next job leaving only the Directors to wind down the company. Once in Bankruptcy, the courts will appoint a Trustee to oversee the liquidation; this is where the fun begins. The Trustees job is to find as much money to give back to creditors. Often since the company has no money, the look at the decision made by the directors and officers to see if their decision were prudent during the company’s lifetime. Often the Trustees will bring suit against the directors and officers for decisions made that were not in the best interest of the company. Since the company went bust, this is often not a difficult task.

The portfolio company’s Directors and Officers liability policy is the first line of defense, but in most bankruptcies the insurance winds up not getting paid and it cancels. Since Directors and Officers policies are Claims-Made Policies, the policy must be in force at the time of claim. If the Directors of the company are diligent they may see bankruptcy is the likely outcome and inform the insurer to exercise the extended reporting provisions with the policy (tail coverage) which allows claims to be brought for a specified period beyond the closure of the company. This is great in theory, but often does not happen because the company has no money to pay the premium and the directors are left to defend themselves. If you are an independent director it would be prudent to buy your own Individual Director Liability (IDL) policy, particularly if you sit on many boards. If you are the appointed board member for the Venture firm you may have one more line of defense, if the firm has their own Management Liability policy. This combination Directors and Officers/Professional Liability Policy provides protection to the appointed board members of the firm. The Outside Director Liability section of the Management Liability policy extends the policy limits to the appointed directors in excess over any available indemnification or collectible insurance at the portfolio company level. Keep in mind this is only available for the Venture Firm’s directors.

Claims against directors and officers as a result of bankruptcy have become prolific in the past few years. As a Director, ask questions about your protection. Venture firms make sure your policy conforms to the new regulations and industry climate. If a bankruptcy hits one of your portfolio companies, make sure there is enough money to pay for the Extended Reporting Period. As a last resort, the directors can pay for the extended reporting period premium themselves. This may be the best pre-paid legal fees you will ever buy.

Alternative Strategies to Market Your Business Venture

Name any business which sprouted from nowhere and went on to become a number- crunching machinery, running high on a steady flow of profit. Be it Starbucks or KFC, every business enterprise started off as a small one in size of the capital invested. To make a business go big, one doesn’t necessarily need a huge capital investment as much as he needs a business vision. It’s the vision that makes all the difference. Colonel Sanders or Zoe Siegl always dreamt big and had a plan to follow up that dream into reality. Don’t expect your business to create a market sensation unless you know the trick of finding products for your customers.

Importance of a Definite Business and Marketing Plan

Even though the dark cloud of recession is touted to fade away in the next two years, its still a major financial risk to start a small business on your own. A business plan will include details about the type of business you want to run, the amount you are going to invest, your partners in various stages of it, the market that you wish to carve out for yourself, and the basic infrastructure of operating the business smoothly. This business plan includes the marketing plan which contains the details of ways in which you wish to deliver the finished goods to the consumers as well as market your company’s shares.

Emergence of New Media

A marketing plan literally makes or breaks a company’s reputation. In the cut throat business atmosphere of 2010, the more radical and off beat ones marketing ideas are, the better chances does he stand to laugh the last laugh at the end of the day. Gone are those days when you could depend on the television commercials, newspaper ads, magazine spreads, and radio broadcasts to popularize your brand. There are several reasons behind this, some of them being, lack of engaging television shows or radio programmes, distrust in the way newspapers manufacture daily news. More and more people are spending time online for their studies, entertainment and work purposes. Internet has simplified our lives in so many ways that its high time we tap its potential to business products. More than any other form of media, Internet ensures higher rates of profitability, return on investment and increase the market saturation to meet the targeted results.

Social Networking Sites

There are different ways to harness the potential of this new media, depending on how much money you wish to spend on marketing. If your primary focus is on product manufacture and you wish to devote minimal money and attention to marketing, try employing the simplest trick of marketing on a social networking site. Myspace, Facebook, Orkut, LinkedIn, Twitter give you options to write status messages which will w#be displayed to all your friends whenever they log in. using this status bar, you may promote your business by dropping off attractive offers or links to your business website. You may even highlight the fact that you are offering them an undeniable business proposition where they only stand to profit.

Irrespective of whether you are going to launch a Business to consumer or business to business enterprise, taking the help of certain recommended marketing softwares to efficiently lure prospective customers, always is a good idea.

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