Skip to main content

Equity Capital Markets – Valuation & Preference Shares (Part 5)

Image
By

Equity Capital Markets – Valuation & Preference Shares (Part 3)

Back to: Part 2 – Public Issue & Application Process

11. Cash Equity vs Equity Derivatives

  • Cash Equity: Actual buying/selling of shares in the spot market.
  • Equity Derivatives: Contracts based on equity like futures and options.

12. Demat Account

A Dematerialized account holds your securities in electronic form. It allows seamless trading, settlement, and safekeeping of shares.

13. Valuation Techniques

  • Relative Valuation: Compare with peers using ratios (P/E, P/B).
  • Cash Flow Approach: Discounted Cash Flow (DCF) method based on future cash flows.
  • Earnings Method: Based on expected earnings (EPS x P/E).
  • Balance Sheet Approach: Based on net assets value.
  • Market Approach: Compares market capitalization with financial metrics.

Technical Tools

  • RSI Indicator: Identifies overbought or oversold stock conditions.
  • Moving Average: Tracks price trends over a period (SMA, EMA).

14. Preference Shares

Definition: Hybrid instrument with both equity and debt features. Preference shareholders get priority for dividends and during liquidation.

Features:

  • Fixed dividend
  • Priority over equity shares
  • No voting rights (generally)

Types of Preference Shares:

  • Cumulative: Unpaid dividends are carried forward.
  • Non-Cumulative: No dividend carry forward.
  • Participating: Eligible for surplus profit sharing.
  • Non-Participating: Fixed dividend only.
  • Convertible: Can be converted into equity shares.
  • Non-Convertible: Cannot be converted to equity.
  • Redeemable: Repayable after a fixed period.
  • Irredeemable: Not repayable (rare today).

15. Depository Receipts

  • ADR (American Depository Receipt): Issued in US market.
  • GDR (Global Depository Receipt): Issued in markets outside US (e.g., Europe).

Sponsored vs Non-Sponsored:

  • Sponsored: Issued with cooperation of the company.
  • Non-Sponsored: Issued by a bank without direct involvement of the company.

IDR (Indian Depository Receipt):

Allows foreign companies to raise capital in Indian markets by issuing shares to Indian investors.

Conclusion

Understanding the structure of capital markets, types of shares, valuation techniques, and public issue processes is essential for finance professionals, CA students, and investment banking aspirants. Whether you're analyzing stocks or working in the back-office of equity operations, these concepts form the bedrock of capital markets knowledge.

Comments

Post a Comment

Popular posts from this blog

Practical point of view of reconciliation example cCITI

By
Reconciliation at Citi Bank Reconciliation in Financial Institutions like Citi – With Examples 1. What is Reconciliation? Reconciliation is the process of comparing internal financial records with external sources to identify and resolve discrepancies. It ensures data integrity, regulatory compliance, and accurate reporting. 2. Types of Reconciliation at Citi – With Real Examples a. Cash Reconciliation Matches Citi's internal ledger entries with external bank balances. Example: Citi ledger shows $1.5M; JPMorgan shows $1.49M. A $10K FX delay is corrected. b. Securities/Position Reconciliation Checks holdings vs. custodians. Example: Citi reports 10,000 Reliance shares; NSDL shows 9,800. A corporate action wasn’t processed. c. Trade Reconciliation Validates trade flow across systems. Example: Front office shows $1M trade; middle office shows $1.2M. FX rate mismatch fixed. d. TLC Reconciliat...
Post a Comment
Read more

Securitization & Tokenization: Concepts, Process, and Comparison

By
Securitization & Tokenization: Concepts, Process, and Comparison 1. What is Securitization? Securitization is the process of converting illiquid assets (like loans) into tradeable securities. It allows financial institutions to raise funds and transfer risks. Features: Pooling of assets Tranching (senior/junior) Structured repayments Uses: Liquidity enhancement Risk transfer Capital relief for banks Risks: Credit risk of underlying borrowers Model risk in structuring Systemic risk if improperly regulated 2. How is Securitization Executed? Originator (e.g. bank) pools loans/assets Assets are transferred to an SPV (Special Purpose Vehicle) SPV issues securities to investors backed by cash flows from the assets 3. Participants and Instruments Involved Originator: Entity that owns original assets SPV: Legal entity that issues securities Investors: Buyers of securities Credit Rating Ag...
Post a Comment
Read more

Mastering Derivatives: BEP, Profit/Loss & Option Strategies Simplified

By
Mastering Derivatives: BEP, Profit/Loss & Option Strategies Simplified Introduction In today’s financial world, derivatives are key instruments used for hedging risk, speculation , and smart investment strategies . Whether you're a CA student , a finance enthusiast , or preparing for Investment Banking interviews , this guide will help you master the fundamentals of derivatives—including Break-Even Point (BEP) , Profit/Loss logic , and essential option strategies . What Are Derivatives? A derivative is a financial contract whose value is derived from another asset, called the underlying asset . Common underlying assets include: Stocks (e.g., Infosys, TCS) Commodities (e.g., Gold, Crude Oil) Currency Pairs (e.g., USD/INR) Indices (e.g., Nifty, Sensex) Bonds or Interest Rates Types of Derivatives 1. Forwards Customized agreement between two parties Buy/sell at a fixed price on a future date Private contract (OTC), not traded on exchanges 2. Futures ...
Post a Comment
Read more