CAPITAL MARKET

CAPITAL MARKET
The

market where investment instruments like bonds, equities and mortgages are traded is known as the capital market. The primal role of this market is to make investment from investors who have surplus funds to the ones who are running a deficit.

The capital market offers both long term and overnight funds. The different types of financial instruments that are traded in the capital markets are: > equity instruments > credit market instruments, > insurance instruments, > foreign exchange instruments, > hybrid instruments and > derivative instruments.

Nature of capital market The nature of capital market is brought out by the following facts:  It Has Two Segments  It Deals In Long-Term Securities  It Performs Trade-off Function  It Creates Dispersion In Business Ownership  It Helps In Capital Formation  It Helps In Creating Liquidity .

Types of capital market There are two types of capital market: Primary market. Secondary market .

 . Therefore. debentures and other securities are sold for the first time for collecting long-term capital. the primary market is also called NEW ISSUE MARKET.Primary Market It is that market in which shares. This market is concerned with new issues.

for extending business. machinery and buildings. and for setting up new business unit. The money collected from this market is generally used by the companies to modernize the plant. hence.In this market. . it helps directly in the capital formation of the country. the flow of funds is from savers to borrowers (industries).

Features of Primary Market It Is Related With New Issues  It Has No Particular Place  It Has Various Methods Of Float Capital: Following are the methods of raising capital in the primary market: i) Public Issue ii) Offer For Sale iii) Private Placement iv) Right Issue v) Electronic-Initial Public Offer  It comes before Secondary Market  .

Secondary Market The secondary market is that market in which the buying and selling of the previously issued securities is done. The chief purpose of the secondary market is to create liquidity in securities.  . The transactions of the secondary market are generally done through the medium of stock exchange.

 If an individual has bought some security and he now wants to sell it. he can do so through the medium of stock . their are 24 stock exchange in India. . exchange to sell or purchase through the medium of stock exchange requires the services of the broker presently.

Features of Secondary Market • • • • It Creates Liquidity It Comes After Primary Market It Has A Particular Place It Encourage New Investments .

the stock market and the bond market.  . Since there are two types of capital markets.CAPITAL MARKET RISK Investment in long term financial instruments is accompanied by high capital market risks. So risks are present in both the market.

The efficient market hypothesis shows the effect of fundamental factors in changing the price of the stock market.Risk in the Stock Market Stock prices keep fluctuating over a wide range unlike the bank deposits or government bonds.  .

.The Efficient Market Hypothesis shows that all price movements are random whereas there are plenty of studies that reflect the fact that there is a specific trend in the stock market prices over a period of time. Research has shown that there are certain psychological factors that shape the stock market prices.

In the short run the stock market prices may be very volatile due to the occurrences of the fast market changing events.Sometimes the market behaves illogically to any economic news. . rumors and mass panic.  The stock market prices can be diverted in any direction in response to press releases.   The stock market prices are also subject to speculation.

Risk in the Bond Market  Capital market risk in the bond market arises due to interest rate changes. Hence the bond prices are sensitive to the monetary policy of the country as well as economic changes. There is an inverse relationship existing between the interest rate and the price of the bond. .

>1850s: Sharp increase in the capital market brokers owing to the rapid development of commercial enterprise. Chronology of the Indian capital markets >1830s: Trading of corporate shares and stocks in Bank and cotton Presses in Bombay. .INDIAN CAPITAL MARKET  The Indian Capital Market is one of the oldest capital markets in Asia which evolved around 200 years ago.

>1908: Formation of the Calcutta Stock Exchange Association.>1860-61: Outbreak of the American Civil War and ' Share Mania ' in India. >1894: Formation of the Hamada Shares and Stock Brokers Association. .

The pattern of growth in the Indian capital markets in the post independence regime can be analyzed from the following graphs: .

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From the above graph we find that the number of stock exchanges in India increased at a crawling pace till 1980 but witnessed a sharp rise thereafter till 1995. .

The following diagram shows the trend in the no. The number of stocks issued by the listed companies also shows a similar trend: . Here again we register a sharp rise after 1980. of listed companies participating in the Indian Capital Market.

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>the Proxy Statements .  There are four different kinds of capital market reports: >10-K Reports. >10-Q Reports. >Form 8-K Reports.CAPITAL MARKET REPORT The Capital Market Report is prepared by the capital market analysts and is of various types.  .

 This informs us about the bylaws of the company. other legal documents and the lawsuits that the company may have a hand in.  They consist of financial statements and list the material events that have occurred in the company.  10-Q Reports or the Quarterly Reports The quarterly reports are the abridged form of the annual reports.  They are issued at an interval of three months.  .10-K Reports This is a kind of annual report of the company that contains information of the company's business. finances and management.

Form 8 –K Report  The companies that are publicly traded are required to maintain the Form 8-K where they record any material event that might have affected the financial status of the company Proxy Statements  The proxy statement consists of business issues that need to be discussed in the meeting and a ballot for voting for the purpose of forming the new Board of directors. .

 Capital market investment that takes place through the bond and the stock market may be elucidated in the following heads.  .CAPITAL MARKET INVESTMENT Capital market investment takes place through the bond market and the stock market.  The capital market is basically the financial pool in which different companies as well as the government can raise long term funds.

 .  The capital market investments can occur either in: 1) The physical market by a method known as the open outcry.Capital market investments in the stock market The stock market is basically the trading ground capital market investment in the following: i) Company’s stocks ii) Derivatives iii) Other securities  The capital market investments in the stock market take place by: 1) Small individual stock investors 2) Large hedge fund traders.

 The stock exchanges basically function as the clearing house for such liquid transactions.2) Trading can also occur in the virtual exchange where trading is done in the computer network.  The investors in the stock market have the liberty to buy or sell the stock that they are holding at their own discretion unlike the case of government securities. bonds or real estate. .  The capital market investments in the stock market are also done through the derivative instruments like the stock options and the stock futures.

 . credit or fixed income market. They are: • Corporate.  There are different types of bond markets based on the different types of bonds that are traded. • Government and agency. • Municipal. • Collateralized Debt Obligation. • Bonds backed by mortgages & assets.Capital Market Investments in the Bond Market The bond market is a financial market where the participants buy and sell debt securities.  The bond market is also differently known as the debt.

closed-end-funds or the unit investment trusts.The bonds.  Another way of investing directly in the bond issue is the Exchange-tradedfunds.  The capital market investment in the bond market is done by: • Institutional investors • Governments. except for the corporate bonds do not have formal exchanges but are traded over-the.counter.  . traders and • Individuals.  Individual investors are attracted to the bond market and make investments through the bond funds.

BY:- Akansha Singh .