BASICS OF INDIAN

CAPITAL MARKET
1.INDIAN FINANCIAL SYSTEM
2.MONEY MARKET
3.NEW ISSUE MARKET
4.SECONDERY MARKET
5. CAPITAL MARKET LEGISLATION
6.NEW CONCEPTS & NEW INSTRUMENTS
7. FINANCIAL SERVICES
 1.INDIAN FINANCIAL SYSTEM

 A. Indian Financial System is basically like other

financial system where the surplus of one sector
is transferred to the deficit sector to have the
best utilization of the national finance
 B. the constituents of Indian financial system are
RBI - SEBI – IRDA – Commercial Banks –
Financial Institutes – Financial Instruments –
Stock Exchanges – Relevant legislatures .
 C. the structure of Indian financial system is
complex and vast . It is shown in the following
slide
Chart showing Indian financial
system
 INDIAN FINANCIAL SYSTEM
Financial Financial Financial Financial
Market Institutions Services Market
Non
Regulators
Money Capital Intermediaries
Others

Market Market Intermediaries

FUND Media
BASED
Fee Based Regulators

P s IDBI
Primary IFCI
NABARD
secondary ICICI
ETC Leasing
Hire Purchase Merchant Banking
Bill Discounting Portfolio Management
Banking Venture Capital Mergers- Acquisition Consulting
Housing Finance Corporate Reorganization
Factoring
Non banking
 2.MONEY MARKET
 A. Concept : It is that part of capital market which
deals with short term financial assets . The
investment and recovery time vary from 1 day to
365 days only .
 B. Features :
 i) Wholesale market
 ii) Both organized & unorganized sector
 iii) Participants are commercial banks –Mutual
Funds – Financial Institutions – RBI –
Government- Corporates- etc.
 iv) It affects interest rates – Bank rates – CRR-
SLR – etc.
 C. Instruments of Money Market :
 1.Call Money ( 1-15 days )-DFHI – Organised –unorganised
 2.Term money ( 7- 180 days ) – organised
 3.Certificate of deposit ( 1m-6 m) – organised
 4.Commercial paper( 30 -365 days ) Min Inv . 5 Lakhs
 5.Money market mutual fund( 1-365 days )
 6.Commercial bill ( within one year )

( within one year )
7.Treasury bills
 NB : returns – interest varies – RBI – Demand –
supply play role in interest fixation
 D. Following Slide shows statics about Indian
money market system .
Indian money market instrument
statistics
35000
30000
25000 TB
20000 CB
15000 CP
CD
10000
GOI SC
5000
TM
0
90- 91- 91- 92- 93- 94-
91 92 92 93 94 95
 3.NEW ISSUE MARKET
 A. Concept : It is a part of capital market which
deals with new capital inflow in the market by
way of loans – investments - IPO's .
 B. Main Means :
 1. IPOs – Initial Public Offerings
 2.SEOs – Secondary Equity Offering
 C .Functions :
 1.Organisation
 2.Underwriting
 3.Distribution
 D. Methods of floating New issue :
 1.Public Issue – IOP /SEO
 2. Offer for Sale – IPO/SEO
 3.Private placement –IPO /SEO
 4. Rights issue -SEO
 5.Bonus issue -SEO
 6.ESOPS-SEO
 E. Different instruments of issue :
 1.Secured premium note with detachable warrant
 2.Wquity share with detachable warrant
 3.Preference share with warrant
 4.FCPF(Fully convertible preference share )
 5.NCD with detachable equity warrants
 6.Zero interest FCD
 7.FCD
 8.Zeor interest PCD
 9 Deep Discount bonds
 10.Bonds with warrants
 11.Other bonds
 F. Institutes / Organisatin Associated with issue
Market
 1.Merchant Bankers
 2. Registrar of Issue
 3.Collection &Co-ordinating Bank
 4. Underwriters
 5. Brokers
 6.Printers
 7. Advertisers
 8. Lead Managers
 9. Co- Managers
 10. Others – sub brokers – NBFC – Rating Agencies – etc.
 G. Diagram showing new issue
market position of India
14000

12000

10000

8000

6000 no.pub .issue

( Crore )Rs
4000

2000

0
87- 88- 89- 90- 91- 92- 93- 94- 95- 96-
88 89 90 91 92 93 94 95 96 97
 4.SECONDERY MARKET

 A. Concept : It is that part of Capital Market

where existing Shares and other instruments are
bough and sold
 B. Major Components :
 1.stock Exchanges
 2. NSDL
 3. CSDL
 4. Investors – Institutional-Corporate –
Individual – Wholesale – Retail
 5.Regulating Authorities
C. Primary market Vs. Secondary market

 PRIMARY Market  Secondary MARKET

 Deals With New Issue  Deals with existing
Instruments
 Regular Trading
 IPOs , SEOs are main
operations
 Less Volatile
 More Volatile
 Less risky
 More risky
 No role of Stock
 Greater role of Stock
Exchange Exchange
 Less Organised
 More organised
 D.Money Market Vs. Capital
Market
 MONEY MARKET  CAPITAL MARKET
 Short Term  Long Term
 Source for WC & Govt .  Sources for Long term
Borrowings fund
 Each Unit is Large  Each unit is small
 Mainly wholesale
market
 Both wholesale &
retail
 E. Controlling mechanism of
Secondary market
 1.Recognition of Stock Exchange
 2.listing of Securities

 3.Registration of Brokers

 4.intervention of legislation
 F. Stock exchange : It is the organised market
where the existing stock are purchased and
sold .
 G. Indian Stock Exchanges :Bombay Stock
Exchang is the oldest one established in 1875
( BSE ) followed by CSE –DSE & MSE.
 At present there are 28 stock exchanges
 BSE and NSE are the most popular and modern
one .
 Middle men In stock exchange :
 1.Brokers
 2.Taraniwalas
 3.Commission agents
 4.Sub brokers
 5.Authorised Clerk
 6. Jobbers
 7. Portfolio Consultants
 5.CAPITAL MARKET
LEGISLATION
 A. Controlling Bodies :
 1.SEBI
 2.NSDL
 3.CSDL
 4.ROC
 5.RBI
 6.IRDA
 7.MINISTRY OF FINANCE
 8.STOCK EXCHANGES
 9.CLB
 B. Investors Protection :
 REMOVAL OF GRIVANE
THROUGHGRIVANCE CELL
 ARBITRATION
 SPECIAL COMMITTEE
 DICIPLINARY ACTION
 C. Investors protection tools :
 1. Legal provisions : U / S 58 , 73 , 111 , of
Companies Act , SEBI Act 1992 etc.
 2.Credit Rating : Agencies like ICRA –
CRISIL _ etc. do credit rating for the
instruments
 3. Role of Press : Media and press
indirectly protects .
 6.NEW CONCEPTS & NEW
INSTRUMENTS
 A. OVER THE COUNTE EXCHANGE – It is
known as OTCE . It is organised way of
dealing stock and other assets . Promoters
are LIC , UTI , SBI , CANBANK etc. In
1996 only 65 members but by 2003 it is
above 200.
 B. NATIONAL STOCK EXCHANGE :
 C. DEPOSITORY SYSTEM
 D. MUTUAL FUND
 E. BOOK BUILDING:
 F. DERIVATIVES :
 G.ON LINE STOCK TRADING :
 H. BULL –BEAR – STAG- LAME DUCK
 I. GREEN SHOE OPTION
 7.FINANCIAL SERVICES
 Concept : Financial services means the
supporting activities which is done to aid the
finance market , institutions and investors .
 CLASSIFICATION: A ) FUND BASED – NBFC
,AMC,HP&LEASING, BILL DISCOUNTING,
HOUSING FINANCE , INSURANCE ,
FACTORING , VENTURE CAPITAL .B) FEE
BASED- MERCHANT BANKING , MERGERS,
STOCK BROAKING , CREDIT RATING
 The important services are :
 A. Merchant Banking
 B. Credit rating
 C. Underwriting
 D. Broking
 E. Portfolio Consulting .
 F. OTHERS
A .Merchant Banking
B. Credit rating
C.Underwriting
D. Broking
E. Portfolio Consulting
 F. OTHER SERVICES
 1.HOUSING FINANACE
 2.DEPOSITORY – CSDL / NSDL
 3.AMC – MUTUAL FUNDS
 4.CREDIT CARDS
 5.DEBIT CARDS
 6.SMART CARDS
 7.INSURANCE – LIFE & GENERAL / GOVT.
&PRIVATE
 8.OTHER CONTEMPORARY
TOPICS IN CAPITAL MARKET
 1.GREEN SHOE OPTIONS
 2.RED HEARING PROSPECTUS
 3.IOP – PRICE BAND –FLOOR PRICE
 4.EQUITY BUY BACK – U/S 77A ,……
 5.ESOP SCHEME
 6. SWAPA – INTEREST – FOREX
 7.REPOS