Page 54 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Unit 1: Introduction to Capital Market

Investments in Equity Notes

Private Equity is expanding at a fast pace. India acquired US $13.5 billion in 2008 under equity
shares and featured among the top 7 nations in the world. In 2010, the total equity investment is
predicted to increase up to USD 20 billion. Indian equities promise satisfactory returns and have
more than 365 equity investments firms functioning under it.

Investments in Non Resident Ordinary (NRO) funds

Investing in domestic (NRO) is one of the best investment alternatives for NRIs who wish to
deposit their income accrued abroad and maintain it in Indian rupees. The deposited amount
along with the interest is completely repatriable. Investment can be done in Indian financial
institutions including the Non Banking Finance Companies which are listed with RBI. The
interest returns accrued on in this account is entitled under IT Act and is subject to 30% tax
reduction at source including the appropriate surcharge and education cess. The NRI investor
can repatriate upto USD 1 million every year, for genuine reasons, by forfeiting valid tariffs.

1.5 Dematerialization

Dematerialization is the process by which a client can get physical certificates converted into
electronic balances. An investor intending to dematerialize its securities needs to have an account
with a DP. The client has to deface and surrender the certificates registered in its name to the DP.
After intimating NSDL electronically, the DP sends the securities to the concerned Issuer/ R&T
agent. NSDL in turn informs the Issuer/ R&T agent electronically, using NSDL Depository
system, about the request for dematerialization. If the Issuer/ R&T agent finds the certificates in
order, it registers NSDL as the holder of the securities (the investor will be the beneficial owner)
and communicates to NSDL the confirmation of request electronically. On receiving such
confirmation, NSDL credits the securities in the depository account of the Investor with the DP.

Dematerialized securities trading, settlement and custody has changed considerably the market
microstructure of Indian stock exchanges. Generally, an investor would look for more liquidity
to less liquidity in a stock. Higher liquidity means lower transaction costs and easy entry and
exit options. Therefore, higher liquidity is preferred. Ownership transfer of demat shares is
quite fast. Investors would be able to churn their portfolio many a times over, contributing to
the increase in turnover and liquidity.
Dematerialised shares are definitely superior to physical (paper) form of shares. Physical forms
of shares are fraught with fake, forgery, stolen and duplicate problems. Logically speaking,
higher demand should emanate for demat shares, which is expected to push up (pull down to a
lesser extent) shares prices resulting in higher returns (lesser losses) to the investors compared
to predemat period. This higher demand will continue for sometime (adjustment period lasting,
sometimes, a few months) only.
Features:
1. Holdings in only those securities that are admitted for dematerialisation by NSDL can be
dematerialised.
2. Only those holdings that are registered in the name of the account holder can be
dematerialised.
3. Names of the holders of the securities should match with the names given for the demat
account.

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