Professional Documents
Culture Documents
Capital Markets
M.com Part-2 2019-20 Capital Markets
CAPITAL MARKETS
MASTER OF COMMERCE
ACCOUNTANCY
SEMESTER III
2019 – 2020
SUBMITTED
ACCOUNTANCY
BY
ROLL NO. – 07
AND
“CAPITAL MARKETS”
A PROJECT SUBMITTED TO
MASTER OF COMMERCE
BY
ROLL NO. 07
AND
8-A, Gokhale Mahavidyalaya Marg, Mhada Colony, Borivali West Mumbai- 400 091
Maharashtra
CERTIFICATE
This is to clarify that Ms. GEETA VASANT DAHIPHALE has worked and duly completed
her project work for the degree of Master in Commerce under the Faculty of Commerce in
subject of ADVANCED ACCOUNTANCY and her Project is entitled, “CAPITAL
MARKETS” under my supervision. I further certify that the entire work done by the learner
under my guidance and that no part of it has been submitted previously for a Degree or
Diploma of University.
It is her work and facts reported by her personal findings and investigations.
DECLARATION BY LEARNER
I the undersigned MS. GEETA VASANT DAHIPHALE here by declared that the work
embodied in project work titled “CAPITAL MARKETS” forms my own contribution to the
research work carried out under the guidance of Prof. Mrs. Nameeta Agarwal is a result of my
own research work and has not been previously submitted to any other University for any other
Degree / Diploma to this or any other University.
Whenever reference has been made to previous works of others, it has been clearly indicated as
such and included in the Bibliography.
I, here by further declare that all information of this document has been obtained and presented
in accordance with academic rules and ethical conduct.
Certified By,
ACKNOWLEDGEMENT
To list who all have helped me is difficult because they are so much numerous, and the depth
is so enormous.
I would like to acknowledge the following as being idealistic channels and fresh dimension in
the completion of this Project.
I take this opportunity to thank the University of Mumbai for giving me to chance to do this
Project.
I would like to Thank my Principal Dr. Prof. Mrs. S. V. Sant for providing the necessary
facilities required for completion of this Project.
I take this opportunity to thank our Coordinator, Prof. Mrs. Nameeta Agarwal for been
support and guidance.
I would also like to express my sincere gratitude towards my Project Guide whose guidance
and care made the Project successful.
I would like to thank my College Library, for having provided various reference book and
magazines related to my project.
Lastly, I would like to thank each and every person who directly or indirectly helped me in the
completion of the project especially my Parents and Peers who supported me throughout my
Project.
Thanking You…….
M.com Part-2 2019-20 Capital Markets
EXECUTIVE SUMMARY
INTRODUCTION:
The project on capital study is an attempt to study an overall primary market and
secondary market in India. It’s helped to know and study the parameters opted by all the
capital market and the companies who are operating themselves under the rules and regulation
of capital market. The performance of capital market has registered a significant upward in
recent times right from the beginning capital market attract every person as it has become
common to see car on road every day and being a student, I learned a lot from this project, and
it would help me a lot in making my career. I come to know a lot about Indian as well as
international capital market and how they help their economy.
The market for long term securities like Bonds, Equity stock and Preferred stock is divided
into primary and secondary market. The primary market deals with the new issue of securities.
Outstanding securities are traded in the secondary market or stock exchange. In the secondary
market the investor can sell and buy securities. Stock market predominantly deals in the equity
shares debts instrument like bonds and debenture are also traded in the stock market.
Growth of the primary market depends on the secondary market. The health of the
economy is reflected by the growth of the stock market. Company raises funds to finance the
project to various methods. The promoters can bring the own money or borrow from the
financial institution or mobilize capital by issuing securities. The funds may be raised from
issue of fresh share at par, or at premium preference shares debentures or global depository
receipts
M.com Part-2 2019-20 Capital Markets
INDEX
12 Research Methodology 71
15 Conclusion 86
16 Bibliography 87
M.com Part-2 2019-20 Capital Markets
CHAPTER 1:
INTRODUCTION TO CAPITAL MARKETS
1
M.com Part-2 2019-20 Capital Markets
large number of individuals translate into usable capital for corporates. Your small savings of,
say, even ` 5,000 can contribute in setting up, say, a ` 5,000 crore Cement or Steel plant.
This mechanism by which corporates raise money from public is called the primary markets.
Importantly, when you, as a shareholder, need your money back, you can sell these
shares to other or new investors. Such trades do not reduce or alter the company’s capital.
Stock exchanges bring such sellers and buyers together and facilitate trading. Therefore,
companies raising money from public are required to list their shares on the stock exchange.
This mechanism of buying and selling shares through stock exchange is known as the
secondary markets.
As a shareholder, you are part owner of the company and entitled to all the benefits of
ownership, including dividend (company’s profit distributed to owners). Over the years if the
company performs well, other investors would like to become owners of this performing
company by buying its shares. This increase in demand for shares leads to increase in its price.
You then have the option of selling your shares at a higher price than at which you purchased
it. You can thus increase your wealth, provided you make the right choice. The reverse is also
true!
Apart from shares, there are many other financial instruments (securities) used for
raising capital. Debentures or bonds are debt instruments that pay interest over their lifetime
and are used by corporates to raise medium or long-term debt capital. If you prefer fixed
income, you may invest in these instruments, which may give you higher rate of interest than
bank fixed deposit, because of the higher risk. Besides, equity and debt, a combination of these
instruments, like convertible debentures, preference shares are also issued to raise capital.
If you have constraints like time, wherewithal, small amount etc. to invest in the market
directly, Mutual Funds (MFs), which are regulated entities, provide an alternative avenue.
They collect money from many investors and invest the aggregate amount in the markets in a
professional and transparent manner. The returns from these investments net of management
fees are available to you as a MF unit holder.
2
M.com Part-2 2019-20 Capital Markets
Capital markets are financial markets for the buying and selling of long-term debt or
equity-backed securities. These markets channel the wealth of savers to those who can put it
to long-term productive use, such as companies or governments making long-term
investments.
»Establishment of SEBI:
The Securities and Exchange Board of India (SEBI) was established in 1988. It got a
legal status in 1992. SEBI was primarily set up to regulate the activities of the merchant banks,
to control the operations of mutual funds, to work as a promoter of the stock exchange
activities and to act as a regulatory authority of new issue activities of companies.
»Establishment of Creditors Rating Agencies:
Three creditors rating agencies viz. The Credit Rating Information Services of India
Limited (CRISIL - 1988), the Investment Information and Credit Rating Agency of India
Limited (ICRA - 1991) and Credit Analysis and Research Limited (CARE) were set up in
order to assess the financial health of different financial institutions and agencies related to the
stock market activities. It is a guide for the investors also in evaluating the risk of their
investments.
3
M.com Part-2 2019-20 Capital Markets
» Investor's Protection:
Under the purview of the SEBI the Central Government of India has set up the
Investors Education and Protection Fund (IEPF) in 2001. It works in educating and guiding
investors. It tries to protect the interest of the small investors from frauds and malpractices in
the capital market.
4
M.com Part-2 2019-20 Capital Markets
» Commodity Trading:
Along with the trading of ordinary securities, the trading in commodities is also
recently encouraged. The Multi Commodity Exchange (MCX) is set up. The volume of such
transactions is growing at a splendid rate.
These reforms have resulted into the tremendous growth of Indian capital market.
A range of factors affects the capital market. Some of the factors that influence capital
market are as follows: -
» Environmental Factors: -
Environmental Factor in India’s context primarily means- Monsoon. In India around
60 % of agricultural production is dependent on monsoon. Thus there is heavy dependence on
monsoon. The major chunk of agricultural production comes from the states of Punjab,
Haryana & Uttar Pradesh. Thus deficient or delayed monsoon in this part of the country
would directly affect the agricultural output in the country. Apart from monsoon other
natural calamities like Floods, tsunami, drought, earthquake, etc. also have an impact on the
capital market of a country.
»Macro-Economic Numbers: -
The macroeconomic numbers also influence the capital market. It includes Index of
Industrial Production (IIP) which is released every month, annual Inflation number indicated
5
M.com Part-2 2019-20 Capital Markets
by Wholesale Price Index (WPI) which is released every week, Export – Import numbers
which are declared every month, Core Industries growth rate (It includes Six Core
infrastructure industries – Coal, Crude oil, refining, power, cement and finished steel) which
comes out every month, etc. This macro –economic indicators indicate the state of the
economy and the direction in which the economy is headed and therefore impacts the capital
market in India.
» Global Cues: -
In this world of globalization various economies are interdependent and
interconnected. An event in one part of the world is bound to affect other parts of the world;
however the magnitude and intensity of impact would vary. Thus capital market in India is
also affected by developments in other parts of the world i.e. U.S., Europe, Japan, etc.
Global cues include corporate earnings of MNC’s, consumer confidence index in developed
countries, jobless claims in developed countries, global growth outlook given by various
agencies like IMF, economic growth of major economies, price of crude –oil, credit rating of
various economies given by Moody’s, S & P, etc.
6
M.com Part-2 2019-20 Capital Markets
7
M.com Part-2 2019-20 Capital Markets
CHAPTER 2:
EVOLUTION AND HISTORY
Indian Stock Markets are one of the oldest in Asia. Its history dates to nearly 200 years
ago. The earliest records of security dealings in India are meager and obscure. The East India
Company was the dominant institution in those days and business in its loan securities used
to be transacted towards the close of the eighteenth century.
By 1830's business on corporate stocks and shares in Bank and Cotton presses took place
in Bombay. Though the trading list was broader in 1839, there were only half a dozen brokers
recognized by banks and merchants during 1840 and 1850.The 1850's witnessed a rapid
development of commercial enterprise and brokerage business attracted many men into the
field and by 1860 the number of brokers increased into 60.In 1860-61 the American Civil War
broke out and cotton supply from United States of Europe was stopped; thus, the 'Share Mania'
in India begun. The number of brokers increased to about 200 to 250. However, at the end of
the American Civil War, in 1865, a disastrous slump began (for example, Bank of Bombay
Share which had touched Rs. 2850 could only be sold at Rs. 87).
At the end of the American Civil War, the brokers who thrived out of Civil War in 1874,
found a place in a street (now appropriately called as Dalal Street) where they would
conveniently assemble and transact business. In 1887, they formally established in Bombay,
the "Native Share and Stock Brokers' Association" (which is alternatively known as “The
Stock Exchange "). In 1895, the Stock Exchange acquired a premise in the same street and it
was inaugurated in 1899. Thus, the Stock Exchange at Bombay was consolidated.
Ahmadabad gained importance next to Bombay with respect to cotton textile industry. After
1880, many mills originated from Ahmadabad and rapidly forged ahead. As new mills were
floated, the need for a Stock Exchange at Ahmadabad was realized and in 1894 the brokers
formed "The Ahmadabad Share and Stock Brokers' Association".
What the cotton textile industry was to Bombay and Ahmadabad, the jute industry was to
Calcutta. Also, tea and coal industries were the other major industrial groups in Calcutta. After
8
M.com Part-2 2019-20 Capital Markets
the Share Mania in 1861-65, in the 1870's there was a sharp boom in jute shares, which was
followed by a boom in tea shares in the 1880's and 1890's; and a coal boom between 1904 and
1908. On June 1908, some leading brokers formed "The Calcutta Stock Exchange
Association".
In the beginning of the twentieth century, the industrial revolution was on the way in India
with the Swedish Movement; and with the inauguration of the Tata Iron and Steel Company
Limited in 1907, an important stage in industrial advancement under Indian enterprise was
reached. Indian cotton and jute textiles, steel, sugar, paper and flour mills and all companies
generally enjoyed phenomenal prosperity, due to the First World War.
In 1920, the then demure city of Madras had the maiden thrill of a stock exchange
functioning in its midst, under the name and style of "The Madras Stock Exchange" with 100
members. However, when boom faded, the number of members stood reduced from 100 to 3,
by 1923, and so it went out of existence.
In 1935, the stock market activity improved, especially in South India where there was a
rapid increase in the number of textile mills and many plantation companies were floated. In
1937, a stock exchange was once again organized in Madras - Madras Stock Exchange
Association (Pvt) Limited. (In 1957 the name was changed to Madras Stock Exchange
Limited).Lahore Stock Exchange was formed in 1934 and it had a brief life. It was merged
with the Punjab Stock Exchange Limited, which was incorporated in 1936.
The Second World War broke out in 1939. It gave a sharp boom which was followed by a
slump. But, in 1943, the situation changed radically, when India was fully mobilized as a
supply base.
Because of the restrictive controls on cotton, bullion, seeds and other commodities, those
dealing in them found in the stock market as the only outlet for their activities. They were
anxious to join the trade and their number was swelled by numerous others. Many new
associations were constituted for the purpose and Stock Exchanges in all parts of the country
were floated. The Uttar Pradesh Stock Exchange Limited (1940), Nagpur Stock Exchange
Limited (1940) and Hyderabad Stock Exchange Limited (1944) were incorporated.
9
M.com Part-2 2019-20 Capital Markets
In Delhi two stock exchanges - Delhi Stock and Share Brokers' Association Limited and the
Delhi Stocks and Shares Exchange Limited - were floated and later in June 1947, amalgamated
into the Delhi Stock Exchange Association Limited.
Most of the exchanges suffered almost a total eclipse during depression. Lahore Exchange
was closed during partition of the country and later migrated to Delhi and merged with Delhi
Stock Exchange.
Bangalore Stock Exchange Limited was registered in 1957 and recognized in 1963.
Most of the other exchanges languished till 1957 when they applied to the Central
Government for recognition under the Securities Contracts (Regulation) Act, 1956. Only
Bombay, Calcutta, Madras, Ahmadabad, Delhi, Hyderabad and Indore, the well established
exchanges, were recognized under the Act. Some of the members of the other Associations
were required to be admitted by the recognized stock exchanges on a confessionals basis, but
acting on the principle of unitary control, all these pseudo stock exchanges were refused
recognition by the Government of India and they thereupon ceased to function.
Thus, during early sixties there were eight recognized stock exchanges in India (mentioned
above). The number virtually remained unchanged, for nearly two decades. During eighties,
however, many stock exchanges were established: Cochin Stock Exchange (1980), Uttar
Pradesh Stock Exchange Association Limited (at Kanpur, 1982), and Pune Stock Exchange
Limited (1982), Ludhiana Stock Exchange Association Limited (1983), Gauhati Stock
Exchange Limited (1984), Kanara Stock Exchange Limited (at Mangalore, 1985), Magadh
Stock Exchange Association (at Patna, 1986), Jaipur Stock Exchange Limited (1989),
Bhubaneswar Stock Exchange Association Limited (1989), Saurashtra Kutch Stock Exchange
Limited (at Rajkot, 1989), Vadodara Stock Exchange Limited (at Baroda, 1990) and recently
established exchanges - Coimbatore and Meerut. Thus, at present, there are totally twenty one
recognized stock exchanges in India excluding the Over the Counter Exchange of India
Limited (OTCEI) and the National Stock Exchange of India Limited (NSEIL).
10
M.com Part-2 2019-20 Capital Markets
CHAPTER 3:
CLASSIFICATION OF CAPITAL MARKET
Companies issue securities from time to time to raise funds in order to meet their
financial requirements for modernization, expansions and diversification programs. These
securities are issued directly to the investors (both individuals as well as institutional)
through the mechanism called primary market or new issue market. The primary market
refers to the set-up, which helps the industry to raise the funds by issuing different types of
securities. This set-up consists of the type
of securities available, financial
institutions and the regulatory framework.
The primary market discharges the
important function of transfer of savings
especially of the individuals to the
companies, the mutual funds, and the
public sector undertakings. Individuals or
other investors with surplus money
invest their savings in exchange for
shares, debentures and other securities. In
the primary market the new issue of
securities are presented in the form of public issues, right issues or private placement.
Firms that seek financing, exchange their financial liabilities, such as shares and
debentures, in return for the money provided by the financial intermediaries or the investors
directly. These firms then convert these funds into real capital such as plant and machinery
etc. The structure of the capital market where the firms exchange their financial liabilities for
long-term financing is called the primary market. The primary market has two distinguishing
features:
» It is the segment of the capital market where capital formation occurs; and
11
M.com Part-2 2019-20 Capital Markets
» In order to obtain required financing, new issues of shares, debentures securities are
sold in the primary market. Subsequent trading in these securities occurs in other segment of
the capital market, known as secondary market.
The securities that are often resorted for raising funds are equity shares, preference
shares, bonds, debentures, warrants, cumulative convertible preference shares, zero interest
convertible debentures, etc. Public issues of securities may be made through:
» Prospectus,
» Offer for sale,
» Book building process and
» Private placement
The investors directly subscribe the securities offered to public through a prospectus. The
company through different media generally makes wide publicity about the public offer.
» Organization: Deals with the origin of the new issue. The proposal is analyzed in
terms of the nature of the security, the size of the issued timings of the issue and flotation
method of the issue.
12
M.com Part-2 2019-20 Capital Markets
makes a promise to the stock issuing company that he would purchase a certain specific
number of shares in the event of their not being invested by the public.
» Capital formation - It provides attractive issue to the potential investors and with this
company can raise capital at lower costs.
» Reduction in cost - Prospectus containing all details about the securities are given to
the investors hence reducing the cost is searching and assessing the individual securities.
13
M.com Part-2 2019-20 Capital Markets
» Rights Issue:
When a listed company proposes to issue fresh securities to its existing shareholders,
as on a record date, it is called as a rights issue. The rights are normally offered in a particular
ratio to the number of securities held prior to the issue. This route is best suited for companies
who would like to raise capital without diluting stake of its existing shareholders.
» A Preferential issue:
14
M.com Part-2 2019-20 Capital Markets
➢ The Issuer who is planning an IPO nominates a lead merchant banker as a 'book runner'.
➢ The Issuer specifies the number of securities to be issued and the price band for orders.
➢ The Issuer also appoints syndicate members with whom orders can be placed by the
investors.
➢ Investors place their order with a syndicate member who inputs the orders into the
'electronic book'. This process is called 'bidding' and is similar to open auction.
➢ A Book should remain open for a minimum of 5 days.
➢ On the close of the book building period the 'book runner evaluates the bids on the
basis of the evaluation criteria which may include -
o 8Price Aggression
o Investor quality
o Earliness of bids, etc.
➢ The book runner and the company conclude the final price at which it is willing to issue
the stock and allocation of securities.
➢ Generally, the numbers of shares are fixed; the issue size gets frozen based on the price
per share discovered through the book building process.
➢ Allocation of securities is made to the successful bidders.
➢ Book Building is a good concept and represents a capital market which is in the process
of maturing.
15
M.com Part-2 2019-20 Capital Markets
As per the guideline the issuer in consultation with Merchant banker decides the price of the
issue. There are no guidelines stipulated by the SEBI, so SEBI does not have any role to play
in determining the price of the issue.
The book should remain open for a minimum of 3 days. As per SEBI guidelines, the
basis of allotment should be completed within 15 days from the issue close date. As soon as
the basis of allotment is completed, within 2 working days the details of credit of demat
account or dispatch of refund order needs to be completed. So an investor should know in
about 15 days from the closure of issue, whether shares are allotted to him or not. It would
take around 3 weeks after the closure of the book built issue, shares to get listed.
Secondary market refers to the network/system for the subsequent sale and purchase
of securities. An investor can apply and get allotted a specified number of securities by the
issuing company in the primary market. However, once allotted the securities can thereafter
be sold and purchased in the secondary market only. An investor who wants to purchase the
securities can buy these securities in the secondary market. The secondary market is market
for subsequent sale/purchase and trading in the securities. A security emerges or takes birth in
the primary market but its subsequent movements take place in secondary market. The
secondary market consists of that portion of the capital market where the previously issued
securities are transacted. The firms do not obtain any new financing from secondary market.
The secondary market provides the life-blood to any financial system in general, and to the
capital market in particular.
The secondary market is represented by the stock exchanges in any capital market. The
stock exchanges provide an organized market place for the investors to trade in the securities.
This may be the most important function of stock exchanges. The stock exchange, theoretically
speaking, is a perfectly competitive market, as many sellers and buyers participate in it and
the information regarding the securities is publicly available to all the investors. A stock
16
M.com Part-2 2019-20 Capital Markets
exchange permits the security prices to be determined by the competitive forces. They are not
set by negotiations off the floor, where one party might have a bargaining advantage. The
bidding process flows from the demand and supply underlying each security. This means that
the specific price of a security is determined, more or less, in the manner of an auction. The
stock exchanges provide market in which the members of the stock exchanges (the share
brokers) and the investors participate to ensure liquidity to the latter.
In India, the secondary market, represented by the stock exchanges network, is more
than 100 years old when in 1875, the first stock exchange started operations in Mumbai.
Gradually, stock exchanges at other places have also been established and at present, there are
23 stock exchanges operating in India. The secondary market in India got a boost when the
Over the Counter Exchange of India (OTCEI) and the National Stock Exchange (NSE) were
established. Out of the 23 stock exchanges, 20 stock exchanges are operating at Mumbai
(BSE), Kolkata, Chennai, Ahmadabad, Delhi, and Indore. Bangalore, Hyderabad, Cochin,
Kanpur, Pune, Ludhiana, Guwahati, Mangalore, Patna, Jaipur, Bhubaneswar, Rajkot,
Vadodara and Coimbatore. Besides, there is one ICSE established by 14 Regional Stock
Exchanges. It may be noted that out of 23 stock exchanges, only 2, i.e., the NSE and the Over
the Counter Exchange of India (OTCEI) have been established by the All India Financial
Institutions while other stock exchanges are operating as associations or limited companies.
In order to protect and safeguard the interest of the investors, the operations, functioning and
working of the stock exchanges and their members (i.e., share brokers) are supervised and
regulated by the Securities Contracts (Regulations) Act, 1956 and the SEBI Act, 1992.
» Trading of securities
» Risk management
» Clearing and settlement of trades
» Delivery of securities and funds
17
M.com Part-2 2019-20 Capital Markets
For the general investor, the secondary market provides an efficient platform for
trading of his securities. For the management of the company, Secondary equity markets serve
as a monitoring and control conduit—by facilitating value-enhancing control activities,
enabling implementation of incentive-based management contracts, and aggregating
information (via price discovery) that guides management decisions.
» Equity Shares
» Rights Issue/ Rights Shares
» Bonus Shares
» Preferred Stock/ Preference shares
» Cumulative Preference Shares
» Cumulative Convertible Preference Shares
» Participating Preference Share
» Bond
» Zero Coupon Bond
» Convertible Bond
» Debentures
» Commercial Paper
» Coupons
» Treasury Bills
18
M.com Part-2 2019-20 Capital Markets
of the 1920s, in which shares were sold "over-the-counter" in stock shops. In other words, the
stocks were not listed on a stock exchange - they were "unlisted".
You might also hear the terms "third" and "fourth markets". These don't concern
individual investors because they involve significant volumes of shares to be transacted per
trade. These markets deal with transactions between broker-dealers and large institutions
through over-the-counter electronic networks. The third market comprises OTC transactions
between broker-dealers and large institutions. The fourth market is made up of transactions
that take place between large institutions. The main reason these third and fourth market
transactions occur is to avoid placing these orders through the main exchange, which could
greatly affect the price of the security. Because access to the third and fourth markets is limited,
their activities have little effect on the average investor.
A Mutual Fund is a trust that pools the savings of a number of investors who share a
common financial goal. The money thus collected is then invested in capital market
instruments such as shares, debentures and other securities. The income earned through these
investments and the capital appreciation realized are shared by its unit holders in proportion
to the number of units owned by them. Thus a Mutual Fund is the most suitable investment
for the common man as it offers an opportunity to invest in a diversified, professionally
managed basket of securities at a relatively low cost. The flow chart below describes broadly
the working of a mutual fund:
19
M.com Part-2 2019-20 Capital Markets
Derivatives is a product whose value is derived from the value of one or more basic
variable, called bases (underlying asset, index or reference rate), in a contractual manner. The
underlying asset can be equity, forex, commodity or any other asset. The International
Monetary Fund defines derivatives as “financial instruments that are linked to a specific
financial instrument or indicator or commodity and through which specific financial risk can
be traded in financial markets in their own right. The value of a financial derivative derives
from the price of an underlying item, such as an asset or index. Unlike debt securities, no
principal is advanced to be repaid and no investment income accrues”. For example, wheat
farmers may wish to sell their harvest at a future date to eliminate the risk of a change in prices
by that date. Such a transaction is an example of a derivative. The price of this derivative is
driven by the spot price of wheat which is the ‘underlying’.
20
M.com Part-2 2019-20 Capital Markets
99.7%. NSE is the first stock exchange in the world to use satellite communication technology
for trading i.e. NEAT.
The NEAT system supports an order driven market, wherein orders match based on time and
price priority. All quantity fields are in units and prices are quoted in Indian Rupees.
21
M.com Part-2 2019-20 Capital Markets
CHAPTER 4:
TYPES OF CAPITAL MARKET
4.1. INTRODUCTION
Any government or corporation requires capital (funds) to finance its operations and
to engage in its own long-term investments. To do this, a company raises money through the
sale of securities - stocks and bonds in the company's name. These are bought and sold in the
capital markets.
Thus there are two types of capital market as follows:
The bond market (also known as the debt, credit, or fixed income market) is a financial
market where participants buy and sell debt securities, usually in the form of bonds.
22
M.com Part-2 2019-20 Capital Markets
References to the "bond market" usually refer to the government bond market, because
of its size, liquidity, lack of credit risk and, therefore, sensitivity to interest rates.
Because of the inverse relationship between bond valuation and interest rates, the bond market
is often used to indicate changes in interest rates or the shape of the yield curve.
Besides other causes, the decentralized market structure of the corporate and municipal
bond markets, as distinguished from the stock market structure, results in higher transaction
costs and less liquidity.
Bond markets in most countries remain decentralized and lack common exchanges like
stock, future and commodity markets. This has occurred, in part, because no two bond issues
are exactly alike, and the variety of bond securities outstanding greatly exceeds that of stocks.
With a large section of population underprivileged, the welfare commitments of the
Indian state have to be supported by a large government borrowing program. The outstanding
marketable government debt has grown from 4.3 trillion in 2000–01 to 29.9 trillion in 2012–
13. The size of the annual borrowing of the central government through dated securities has
grown from 1.0 trillion to 5.6 trillion during this period. It is no mean achievement to manage
such large issuances in a non-disruptive manner in the post Fiscal Responsibility & Budget
Management (FRBM) regime and declining SLR.
The liquidity in the secondary market has also increased significantly from a daily
average trading volume of 9 billion in February 2002 to 344 billion in March, 2013. The
development of the debt and the derivatives market in India needs to be seen from the
perspective of a central bank and a financial sector regulator which has a mandate to facilitate
development of debt markets of the country.
In many countries, debt market (both sovereign and corporate) is larger than equity
markets. In fact, in matured economies, the debt market is three times the size of the equity
market. However, in India like in emerging economies, the equity market has been more
active, developed and has been the center of attention be it in media or otherwise. Nevertheless,
the Indian debt market has transformed itself into a much more vibrant trading field for debt
instruments from the elementary market about a decade ago. Further, the corporate debt market
in developed economies like US is almost 20% of their total debt market. In contrast, the
corporate bond market (i.e. private corporate sector raising debt through public issuance in
capital market), is only an insignificant part of the Indian debt market. Amongst the most
23
M.com Part-2 2019-20 Capital Markets
important reforms is the development and deepening of the nonpublic debt capital market
(DCM), where growth has been lack luster in contrast to a soaring equity market.
The stock of listed non-public-sector debt in India is currently estimated at about
USD 21 billion, or about 2% of GDP, just a fraction of the public-sector debt outstanding
(around 35% of GDP), or the equity market capitalization (now close to 100% of GDP).
To strengthen the Indian financial systems it is now pertinent to develop the
environment for corporate debt market in India.
The limitations of public finances as well as the systemic risk awareness of the banking
systems in developing countries have led to a growing interest in developing bond markets. It
is believed that well run and liquid corporate bond markets can play a critical role in supporting
economic development in developing countries, both at the macroeconomic and
microeconomic levels. Though the corporate debt market in
India has been in existence since the Independence in 1947; it was only after 198586,
following some debt market reforms that the state owned public enterprises (PSUs) began
issuing PSU bonds. However, in the absence of a well functioning secondary market, such
debt instruments remained highly illiquid and unpopular among the investing population at
large.
There are various types of debt instruments available that one can find in Indian debt
market.
» Government Securities:
It is the Reserve Bank of India that issues Government Securities or G-Secs on behalf
of the Government of India. These securities have a maturity period of 1 to 30 years.
G-Secs offer fixed interest rate, where interests are payable semi-annually.
24
M.com Part-2 2019-20 Capital Markets
» Corporate Bonds:
These bonds come from PSUs and private corporations and are offered for an extensive
range of tenures up to 15 years. Comparing to G-Secs, corporate bonds carry higher risks,
which depend upon the corporation, the industry where the corporation is currently operating,
the current market conditions, and the rating of the corporation.
However, these bonds also give higher returns than the G-Secs.
» Certificate of Deposit:
These are negotiable money market instruments. Certificate of Deposits (CDs), which
usually offer higher returns than Bank term deposits, are issued in Demat form and also as a
Usance Promissory Notes. There are several institutions that can issue CDs. Banks can offer
CDs which have maturity between 7 days and 1 year. CDs from financial institutions have
maturity between 1 and 3 years. There are some agencies like ICRA, FITCH, CARE, CRISIL
etc. that offer ratings of CDs. CDs are available in the denominations of ` 1 Lac and in multiple
of that.
» Commercial Papers:
There are short term securities with maturity of 7 to 365 days. CPs is issued by
corporate entities at a discount to face value.
In the recent past, the corporate debt market has seen a high growth of innovative asset-
backed securities. The servicing of debt and related obligations for such instruments is backed
by some sort of financial assets and/or credit support from a third party. Over the years greater
25
M.com Part-2 2019-20 Capital Markets
innovation has been witnessed in the corporate bond issuances, like floating rate instruments,
zero coupon bonds, convertible bonds, callable (put-able) bonds and step redemption bonds.
These innovative issues have provided a gamut of securities that caters to a wider
segment of investors in terms of maintaining a desirable risk-return balance. Over the last five
years, corporate issuers have shown a distinct preference for private placements over public
issues. This has further cramped the liquidity in the market. The dominance of private
placement in total issuances is attributable to a number of factors.
» Lengthy issuance procedure for public issues, in particular, the information disclosure
requirements
» Costs of a public issue are considerably higher than those for a private placement
» The quantum of money raised through private placements is typically larger than those
that can be garnered through a public issue. Also, a corporate can expect to raise debt
from the market at finer rates than the prime-lending rate of banks and financial
institutions only with an AAA rated paper. This limits the number of entities that
would find it profitable to enter the market directly.
The biggest advantage of investing in Indian debt market is its assured returns. The
returns that the market offer is almost risk-free (though there is always certain amount of risks,
however the trend says that return is almost assured). Safer are the government securities. On
the other hand, there are certain amounts of risks in the corporate, FI and PSU debt instruments.
However, investors can take help from the credit rating agencies which rate those debt
instruments.
Another advantage of investing in India debt market is its high liquidity. Banks offer
easy loans to the investors against government securities.
As the returns here are risk free, those are not as high as the equities market at the same
time. So, at one hand we are getting assured returns, but on the other hand, we are getting less
return at the same time. Retail participation is also very less here, though increased recently.
26
M.com Part-2 2019-20 Capital Markets
» Default Risk:
This can be defined as the risk that an issuer of a bond may be unable to make timely
payment of interest or principal on a debt security or to otherwise comply with the provisions
of a bond indenture and is also referred to as credit risk.
» Price Risk:
Refers to the possibility of not being able to receive the expected price on any order
due to an adverse movement in the prices.
Bond market participants are similar to participants in most financial markets and are
essentially either buyers (debt issuer) of funds or sellers (institution) of funds and often both.
Participants include:
» Institutional investors
» Governments
» Traders
27
M.com Part-2 2019-20 Capital Markets
» Individuals
Because of the specificity of individual bond issues, and the lack of liquidity in many
smaller issues, the majority of outstanding bonds are held by institutions like pension funds,
banks and mutual funds. In the India, approximately 10% of the market is currently held by
private individuals. Mortgage-backed bonds accounted for around a quarter of outstanding
bonds in the US in 2009 or some $9.2 trillion. The sub-prime portion of this market is variously
estimated at between $500bn and $1.4 trillion. Treasury bonds and corporate bonds each
accounted for a fifth of US domestic bonds. The outstanding value of international bonds
increased by 13% in 2009 to $27 trillion.
Amounts outstanding on the global bond market increased 10% in 2009 to a record
$91 trillion. Domestic bonds accounted for 70% of the total and international bonds for the
remainder. The US was the largest market with 39% of the total followed by Japan (18%).
For market participants who own a bond, collect the coupon and hold it to maturity,
market volatility is irrelevant; principal and interest are received according to a predetermined
schedule.
But participants who buy and sell bonds before maturity are exposed to many risks,
most importantly changes in interest rates. When interest rates increase, the value of existing
bonds falls, since new issues pay a higher yield. Likewise, when interest rates decrease, the
value of existing bonds rise, since new issues pay a lower yield. This is the fundamental
concept of bond market volatility: changes in bond prices are inverse to changes in interest
rates. Fluctuating interest rates are part of a country's monetary policy and bond market
volatility is a response to expected monetary policy and economic changes.
Investment companies allow individual investors the ability to participate in the bond
markets through bond funds, closed-end funds and unit-investment trusts. Exchange traded
funds (ETFs) are another alternative to trading or investing directly in a bond issue.
28
M.com Part-2 2019-20 Capital Markets
These securities allow individual investors the ability to overcome large initial and incremental
trading sizes.
4.2.B. Trading
Participants in the stock market range from small individual stock investors to large
hedge fund traders, who can be based anywhere. Their orders usually end up with a
professional at a stock exchange, who executes the order.
Some exchanges are physical locations where transactions are carried out on a trading
floor, by a method known as open outcry. This type of auction is used in stock exchanges and
29
M.com Part-2 2019-20 Capital Markets
commodity exchanges where traders may enter "verbal" bids and offers simultaneously. The
other type of stock exchange is a virtual kind, composed of a network of computers where
trades are made electronically via traders.
Actual trades are based on an auction market model where a potential buyer bids a
specific price for a stock and a potential seller asks a specific price for the stock. (Buying or
selling at market means you will accept any ask price or bid price for the stock, respectively.)
When the bid and ask prices match, a sale takes place, on a first-come-first served basis if there
are multiple bidders or askers at a given price.
The purpose of a stock exchange is to facilitate the exchange of securities between
buyers and sellers, thus providing a marketplace (virtual or real). The exchanges provide real-
time trading information on the listed securities, facilitating price discovery.
A few decades ago, worldwide, buyers and sellers were individual investors, such as
wealthy businessmen, with long family histories (and emotional ties) to corporations. Over
time, markets have become more "institutionalized"; buyers and sellers are largely institutions
(e.g., pension funds, insurance companies, mutual funds, index funds, exchange-traded funds,
hedge funds, investor groups, banks and various other financial institutions). The rise of the
institutional investor has brought with it some improvements in market operations. Thus, the
government was responsible for "fixed" (and exorbitant) fees being markedly reduced for the
'small' investor, but only after the large institutions had managed to break the brokers' solid
front on fees. (They then went to 'negotiated' fees, but only for large institutions.
However, corporate governance (at least in the West) has been very much adversely
affected by the rise of (largely 'absentee') institutional 'owners'.
30
M.com Part-2 2019-20 Capital Markets
» Checking functions
New securities checked before being approved and admitted to listing. Thus stock
exchange exercises rigid control over the activities of its members.
» Adjustment of equilibrium
The investors in the stock exchange promote the adjustment of equilibrium of demand
and supply of a particular stock and thus prevent the tendency of fluctuation in the prices of
shares.
» Maintenance of liquidity
The bank and insurance companies purchase large number of securities from the stock
exchange. These securities are marketable and can be turned into cash at any time. Therefore
31
M.com Part-2 2019-20 Capital Markets
banks prefer to keep securities instead of cash in their reserve .This it facilities the banking
system to maintain liquidity by procuring the marketable securities.
32
M.com Part-2 2019-20 Capital Markets
CHAPTER 5:
PARTICIPANTS OF INDIAN CAPITAL MARKET AND
REGULATORS
There are several major players in the primary market. These include the merchant
bankers, mutual funds, financial institutions, foreign institutional investors (FIIs) and
individual investors. In the secondary market, there are the stock exchanges, stock brokers
(who are members of the stock exchanges), the mutual funds, financial institutions, foreign
institutional investors (FIIs), and individual investors. Registrars and Transfer Agents,
Custodians and Depositories are capital market intermediaries that provide important
infrastructure services for both primary and secondary markets.
5.1. Custodians
In the earliest phase of capital market reforms, to get over the problems associated with
paper-based securities, large holding by institutions and banks were sought to be immobilized.
Immobilization of securities is done by storing or lodging the physical security certificates
with an organization that acts as a custodian - a securities depository. All subsequent
transactions in such immobilized securities take place through book entries. The actual owners
have the right to withdraw the physical securities from the custodial agent whenever required
by them. In the case of IPO, a jumbo certificate is issued in the name of the beneficiary owners
based on which the depository gives credit to the account of beneficiary owners. The Stock
Holding Corporation of India Limited was set up to act as a custodian for securities of a large
33
M.com Part-2 2019-20 Capital Markets
number of banks and institutions who were mainly in the public sector. Some of the banks and
financial institutions also started providing "Custodial" services to smaller investors for a fee.
With the introduction of dematerialization of securities there has been a shift in the role and
business operations of Custodians. But they still remain an important intermediary providing
services to the investors who still hold securities in physical form.
5.2. Depositories
The depositories are important intermediaries in the securities market that is scripless
or moving towards such a state. In India, the Depositories Act defines a depository to mean "a
company formed and registered under the Companies Act, 1956 and which has been granted
a certificate of registration under sub-section (IA) of section 12 of the Securities and Exchange
Board of India Act, 1992." The principal function of a depository is to dematerialize securities
and enable their transactions in book-entry form. Dematerialization of securities occurs when
securities issued in physical form is destroyed and an equivalent number of securities are
credited into the beneficiary owner's account. In a depository system, the investors stand to
gain by way of lower costs and lower risks of theft or forgery, etc. They also benefit in terms
of efficiency of the process. But the implementation of the system has to be secure and well
governed. All the players have to be conversant with the rules and regulations as well as with
the technology for processing. The intermediaries in this system have to play strictly by the
rules.
A depository established under the Depositories Act can provide any service connected
with recording of allotment of securities or transfer of ownership of securities in the record of
a depository. A depository cannot directly open accounts and provide services to clients. Any
person willing to avail of the services of the depository can do so by entering into an agreement
with the depository through any of its Depository Participants.
The services, functions, rights and obligations of depositories, with special reference
to NSDL are provided in the second section of this Workbook.
A Depository Participant (DP) is described as an agent of the depository. They are the
intermediaries between the depository and the investors. The relationship between the DPs
and the depository is governed by an agreement made between the two under the depositories
Act, 1996. In a strictly legal sense, a DP is an entity who is registered as such with SEBI under
34
M.com Part-2 2019-20 Capital Markets
the provisions of the SEBI Act. As per the provisions of this Act, a DP can offer depository
related services only after obtaining a certificate of registration from SEBI. SEBI (D&P)
Regulations, 1996 prescribe a minimum net worth of Rs. 50 lakh for the applicants who are
stockbrokers or non-banking finance companies (NBFCs), for granting a certificate of
registration to act as a DP. For R & T Agents a minimum net worth of Rs. 10 crore is prescribed
in addition to a grant of certificate of registration by SEBI. If a stockbroker seeks to act as a
DP in more than one depository, he should comply with the specified net worth criterion
separately for each such depository. If an NBFC seeks to act as a DP on behalf of any other
person, it needs to have a net worth of Rs. 50 cr. in addition to the net worth specified by any
other authority. No minimum net worth criterion has been prescribed for other categories of
DPs. However, depositories can fix a higher net worth criterion for their DPs. NSDL stipulates
a minimum net worth of Rs. 300 Lakh to be eligible to become a DP as against Rs. 50 lakh
prescribed by SEBI (D&P) Regulations, except for R & T agents and NBFCs, as mentioned
above.
Among the important financial intermediaries are the merchant bankers. The services
of merchant bankers have been identified in India with just issue management. It is quite
common to come across reference to merchant banking and financial services as though they
are distinct categories. The services provided by merchant banks depend on their inclination
and resources - technical and financial. Merchant bankers (Category I) are mandated by SEBI
to manage public issues (as lead managers) and open offers in take-overs. These two activities
have major implications for the integrity of the market. They affect investors' interest and,
therefore, transparency has to be ensured. These are also areas where compliance can be
monitored and enforced.
Merchant banks are rendering diverse services and functions. These include organizing
and extending finance for investment in projects, assistance in financial management, raising
Eurodollar loans and issue of foreign currency bonds. Different merchant bankers specialize
in different services. However, since they are one of the major intermediaries between the
issuers and the investors, their activities are regulated by:
35
M.com Part-2 2019-20 Capital Markets
These include:
SEBI authorizes merchant bankers (Category I) for an initial period of three years, if
they have a minimum net worth of Rs. 5 crores. An initial authorization fee, an annual fee and
renewal fee is collected by SEBI.
According to SEBI, all issues should be managed by at least one authorized merchant
banker functioning as the sole manager or lead manager. The lead manager should not agree
to manage any issue unless his responsibilities relating to the issue, mainly disclosures,
allotment and refund, are clearly defined. A statement specifying such responsibilities has to
be furnished to SEBI. SEBI prescribes the process of due diligence that a merchant banker has
to complete before a prospectus is cleared. It also insists on submission of all the documents
disclosing the details of account and the clearances obtained from the ROC and other
government agencies for tapping peoples' savings. The responsibilities of lead manager,
underwriting obligations, capital adequacy, due diligence certification, etc., are laid down in
detail by SEBI. The objective is to facilitate the investors to take an informed decision
regarding their investments and not expose them to unknown risks.
36
M.com Part-2 2019-20 Capital Markets
5.5. Registrar
The Registrar finalizes the list of eligible allotters after deleting the invalid applications
and ensures that the corporate action for crediting of shares to the demat accounts of the
applicants is done and the dispatch of refund orders to those applicable are sent. The Lead
manager coordinates with the Registrar to ensure follow up so that that the flow of applications
from collecting bank branches, processing of the applications and other matters till the basis
of allotment is finalized, dispatch security certificates and refund orders completed, and
securities listed.
Bankers to the issue, as the name suggests, carries out all the activities of ensuring that
the funds are collected and transferred to the Escrow accounts. The Lead Merchant Banker
shall ensure that Bankers to the Issue are appointed in all the mandatory collection centers as
specified in DIP Guidelines. The LM also ensures follow-up with bankers to the issue to get
quick estimates of collection and advising the issuer about closure of the issue, based on the
correct figures.
5.7. Underwriters
issue is beyond the resources of one underwriter or when he does not want to block up large
amount of funds in one issue.
The name of every under-writer is mentioned in the prospectus along with the amount of
securities underwritten by him.
» Firm Underwriting: - is one in which the underwriters apply for a block of securities.
Under it, the underwriters agree to take up and pay for this block of securities as ordinary
subscribers in addition to their commitment as underwriters. The underwriter need not take up
the whole of the securities underwritten by him. For example, if the underwriter has
underwritten the entire issue of 5 lakh shares offered by a company and has in addition applied
for 1 lakh shares for firm allotment. If the public subscribes to the entire issue, the underwriter
would be allotted 1 lakh shares even though he is not required to take up any of the shares.
Underwriting of capital issues has become very popular due to the development of the
capital market and special financial institutions. The lead taken by public financial institutions
has encouraged banks, insurance companies and stock brokers to underwrite on a regular basis.
The various types of underwriters differ in their approach and attitude towards underwriting:-
» Development banks like IFCI, ICICI and IDBI: - they follow an entirely objective
approach. They stress upon the long-term viability of the enterprise rather than
immediate profitability of the capital issue. They attempt to encourage public response
to new issues of securities.
» Institutional investors like LIC and AXIS: - their underwriting policy is governed by
their investment policy.
» Financial and development corporations: - they also follow an objective policy while
underwriting capital issues.
» Investment and insurance companies and stock-brokers: - they put primary emphasis
on the short term prospects of the issuing company as they cannot afford to block large
amount of money for long periods of time.
38
M.com Part-2 2019-20 Capital Markets
The 1990s saw the emergence of a number of rating agencies in the Indian market.
These agencies appraise the performance of issuers of debt instruments like bonds or fixed
deposits. The rating of an instrument depends on parameters like business risk, market
position, operating efficiency, adequacy of cash flows, financial risk, financial flexibility, and
management and industry environment.
The objective and utility of this exercise is two-fold. From the point of view of the
issuer, by assigning a particular grade to an instrument, the rating agencies enable the issuer
to get the best price. Since all financial markets are based on the principle of risk/reward, the
less risky the profile of the issuer of a debt security, the lower the price at which it can be
issued. Thus, for the issuer, a favorable rating can reduce the cost of borrowed capital. From
the viewpoint of the investor, the grade assigned by the rating agencies depends on the capacity
of the issuer to service the debt. It is based on the past performance as well as an analysis of
the expected cash flows of a company, when viewed on the industry parameters and
performance of the company. Hence, the investor can judge for himself whether he wants to
place his savings in a "safe" instrument and get a lower return or he wants to take a risk and
get a higher return.
The 1990s saw an increase in activity in the primary debt market. Under the SEBI
guidelines all issuers of debt have to get the instruments rated. They also have to prominently
display the ratings in all that marketing literature and advertisements. The rating agencies have
thus become an important part of the institutional framework of the Indian securities market.
39
M.com Part-2 2019-20 Capital Markets
» Two or more investors contribute money or other assets to and hold a participatory
interest;
» The investors share the risk and benefit of investment in proportion to their participatory
interest in a portfolio of a scheme or on any other basis determined in the deed.
A Unit Trust Scheme is a Fund into which small sums of monies from individual
investors are collected to form a “pool” for the purpose of investing in stocks, shares and
money market instrument by professional fund managers on behalf of the contributors called
unit holders [subscribers]. By investing in a unit trust scheme, the unit holders enjoy the
benefits of diversification and professional management of their fund at low cost.
The total fund of a unit trust scheme is divided into units of exactly equal monetary
value e.g. If one unit is N1.00, any person investing N100 will get 100 units. Unit Trust Funds
are invested in highly-rated securities on behalf of the unit holders by the management
company.
There are two types of Unit Trust Schemes, viz;
» Open-Ended
This is a Fund that continuously creates issues and redeems units after the initial public
offering. The price is based on the Net Asset Value (NAV), which is total asset of the fund
minus liabilities as at date of purchase or redemption.
» Closed-Ended
In a Closed–Ended Fund, there is no additional issue of new units or redemption of
units. The Fund is usually listed and traded on the Stock Exchange and its price will be
determined by the market forces of supply and demand. A unit holder who wants to redeem
his unit will therefore have to go through his Stockbroker.
40
M.com Part-2 2019-20 Capital Markets
It is early stage financing of new and young companies seeking to grow rapidly. It is
defined as a profit seeking venture by an entrepreneur, whose primary objective is to provide
fund not otherwise available to new and growing business venture for the purpose of making
profit in the long term.
For a Venture Capital Fund to exist there must be the presence of the following: -
» Risk-Takers, who are prepared to invest in Venture Capital Fund and wait for long term
gains rather than short term profits (Venture Capitalist).
» There must be a Venture Capital Company to collect the money from the risk-takers
and offer them shares in return with a promise of high return in future.
» There must be a viable business venture whether new or young into which the Venture
Capital Company could invest part of its equity.
» There must be an entrepreneur with a good business under taking yearning for
expansion capital.
» Fund raising
»Reallow/investment
» Monitoring/value enhancement
» Exit stage.
Private equity investment is one made by foreign investors in Indian Venture Capital
Undertakings (VCU) and Venture Capital Funds (VCF).
41
M.com Part-2 2019-20 Capital Markets
The term FII‘s used to denote an investor, mostly in the form of an institution or entity
which invests money in the financial markets of a country different from the one where in the
institution or the entity is originally incorporated. According to Securities and
Exchange Board of India (SEBI) it is ―an institution that is a legal entity established or
incorporated outside India proposing to make investments in India only in securities . These
can invest their own funds or invest funds on behalf of their overseas clients registered with
SEBI. The client accounts are known as sub - accounts‘. A domestic portfolio manager can
also register as FII to manage the funds of the sub-accounts. From the early 1990s, India has
developed a framework through which foreign investors participate in the Indian capital
market.
A foreign investor can either come into India as a FII or as a sub-account. As on March
31, 2011, there were 1,722 FIIs registered with SEBI and 5,686 sub-accounts registered with
SEBI as on March 31, 2011 Basically FIIs have a huge financial strength and invest for the
purpose of income and capital appreciation. They are no interested in taking control of a
company. Some of the big American mutual funds are fidelity, vanguard, Merrill lynch, capital
research etc.
They are permitted to trade in securities in primary as well as secondary markets and
can trade also in dated government securities, listed equity shares, listed non convertible
debentures/bonds issued by Indian company and schemes of mutual funds but the sale should
be only through recognized stock exchange. These also include domestic asset management
companies or domestic portfolio managers who manage funds raised or collected or bought
from outside India for the purpose of making investment in India on behalf of foreign corporate
or foreign individuals. In the Indian context, foreign institutional investors (FIIs) and their sub-
accounts mostly use these instruments for facilitating the participation of their overseas clients,
who are not interested in participating directly in the Indian stock market.
42
M.com Part-2 2019-20 Capital Markets
FIIs contribute to the foreign exchange inflow as the funds from multilateral finance
institutions and FDI are insufficient.
R&T Agents form an important link between the investors and issuers in the securities
market. A company, whose securities are issued and traded in the market, is known as the
Issuer. The R&T Agent is appointed by the Issuer to act on its behalf to service the investors
in respect of all corporate actions like sending out notices and other communications to the
investors as well as dispatch of dividends and other non-cash benefits. R&T Agents perform
an equally important role in the depository system as well.
These are described in detail in the second section of this Workbook.
Stockbrokers are the intermediaries who are allowed to trade in securities on the
exchange of which they are members. They buy and sell on their own behalf as well as on
behalf of their clients. Traditionally in India, partnership firms with unlimited liabilities and
individually owned firms provided brokerage services. There were, therefore, restrictions on
the amount of funds they could raise by way of debt. With increasing volumes in trading as
well as in the number of small investors, lack of adequate capitalization of these firms exposed
investors to the risks of these firms going bust and the investors would have no recourse to
recovering their dues. With the legal changes being effected in the membership rules of stock
exchanges as well as in the capital gains structure for stock-broking firms, a number of
brokerage firms have converted themselves into corporate entities. In fact, NSE encouraged
the setting up of corporate broking members and has today only 10% of its members who are
not corporate entities.
Mutual funds are financial intermediaries, which collect the savings of small investors
and invest them in a diversified portfolio of securities to minimize risk and maximize returns
for their participants. Mutual funds have given a major fillip to the capital market - both
43
M.com Part-2 2019-20 Capital Markets
primary as well as secondary. The units of mutual funds, in turn, are also tradable securities.
Their price is determined by their net asset value (NAV) which is declared periodically.
The operations of the private mutual funds are regulated by SEBI with regard to their
registration, operations, administration and issue as well as trading.
There are various types of mutual funds, depending on whether they are open ended or
close ended and what their end use of funds is. An open-ended fund provides for easy liquidity
and is a perennial fund, as its very name suggests. A closed-ended fund has a stipulated
maturity period, generally five years. A growth fund has a higher percentage of its corpus
invested in equity than in fixed income securities, hence the chances of capital appreciation
(growth) are higher. In growth funds, the dividend accrued, if any, is reinvested in the fund for
the capital appreciation of investments made by the investor.
An Income fund on the other hand invests a larger portion of its corpus in fixed income
securities in order to pay out a portion of its earnings to the investor at regular intervals. A
balanced fund invests equally in fixed income and equity in order to earn a minimum return to
the investors. Some mutual funds are limited to a particular industry; others invest exclusively
in certain kinds of short-term instruments like money market or government securities. These
are called money market funds or liquid funds. To prevent processes like dividend stripping
or to ensure that the funds are available to the managers for a minimum period so that they can
be deployed to at least cover the administrative costs of the asset management company,
mutual funds prescribe an entry load or an exit load for the investors. If investors want to
withdraw their investments earlier than the stipulated period, an exit load is chargeable. To
prevent profligacy, SEBI has prescribed the maximum that can be charged to the investors by
the fund managers.
A stock exchange is the marketplace where companies are listed and where the trading
happens. They provide a transparent and safe (risk-free) forum of a market for investors to
transact and invest their funds. There are 23 Stock Exchanges registered with SEBI and under
its regulation. National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) are
the pre-dominant ones.
44
M.com Part-2 2019-20 Capital Markets
Insurance companies receive premium in exchange for insurance policies and use these
funds to purchase a variety of securities. Thus, they invest the proceeds received from
insurance in stocks and bonds.
Commercial banks are those companies which are engage in accepting deposits from
savers and lending it back to deficit groups who are demanding loans and advances in order to
invest business. Commercial banks are a major source of deposits collectors among the all
other kinds of financial institutions. They mobilize their depository funds in many forms for
example, lending to individuals and corporations, invest in stock market and participate other
forms of investment.
Credit union differs from commercial savings banks in that they are not profit oriented
company and restrict their business to the main members only. They use most of their funds
to provide loans to their internal members.
Most finance companies obtain funds by issuing securities and then lend the funds to
individuals and small businesses.
45
M.com Part-2 2019-20 Capital Markets
DFIs play the significant role as the source of long-term funds mainly for the corporate
firms. They supply fixed capital to the investors for investment in fixed capital expenditures.
They also perform the underwriting functions relating to shares and debentures of the
corporate firms.
5.A. Regulators
The absence of conditions of perfect competition in the securities market makes the role of
the Regulator extremely important. The regulator ensures that the market participants behave
in a desired manner so that securities market continues to be a major source of finance for
corporate and government and the interest of investors are protected.
The Securities and Exchange Board of India (SEBI) is the regulatory authority in
India established under Section 3 of SEBI Act, 1992. SEBI Act, 1992 provides for
establishment of Securities and Exchange Board of India (SEBI) with statutory powers for (a)
protecting the interests of investors in securities (b) promoting the development of the
securities market and (c) regulating the securities market. Its regulatory jurisdiction extends
over corporates in the issuance of capital and transfer of securities, in addition to all
intermediaries and persons associated with securities market. SEBI has been obligated to
perform the aforesaid functions by such measures as it thinks fit. In particular, it has powers
for:
46
M.com Part-2 2019-20 Capital Markets
• § Regulating the business in stock exchanges and any other securities markets
• § Registering and regulating the working of stock brokers, sub–brokers etc.
• § Promoting and regulating self-regulatory organizations
• § Prohibiting fraudulent and unfair trade practices
• § Calling for information from, undertaking inspection, conducting inquiries and audits
of the stock exchanges, intermediaries, self –regulatory organizations, mutual funds and
other persons associated with the securities market.
➢ SEBI (Prohibition if Fraudulent and unfair Trade Practices relating to Securities Markets)
Regulations, 1995
47
M.com Part-2 2019-20 Capital Markets
If the Sensex goes up, it means that the prices of the stocks of most of the major
companies on the BSE have gone up. If the Sensex goes down, this tells you that the
stock price of most of the major stocks on the BSE have gone down.
• Just like the Sensex represents the top stocks of the BSE, the Nifty represents the top
stocks of the NSE.
• The BSE is the Bombay Stock Exchange and the NSE is the National Stock Exchange.
The BSE is situated at Bombay and the NSE is situated at Delhi. These are the major
stock exchanges in the country. There are other stock exchanges like the Calcutta Stock
Exchange etc. but they are not as popular as the BSE and the NSE. Most of the stock
trading in the country is done though the BSE & the NSE.
• Besides Sensex and the Nifty there are many other indexes. There is an index that gives
you an idea about whether the mid-cap stocks go up and down. This is called the “BSE
Mid-cap Index”. There are many other types of indexes.
• There is an index for the metal stocks. There is an index for the FMCG stocks. Similarly,
there is an index for the automobile stocks etc.
5.B.1. How the Sensex is calculated?
• The Sensex is calculated taking into consideration stock prices of 30 different BSE listed
companies. It is calculated using the “free-float market capitalization” method. This is a
worldwide accepted method as one of the best methods for calculating a stock market
index.
• The method used for calculating the Sensex and the 30 companies that are taken into
consideration are changed from time to time. This is done to make the Sensex an accurate
index and so that it represents the BSE stocks properly.
• In order to understand how the Sensex is calculated, first we should know what the term
“free-float market capitalization” means. But, before we understand what “free-float
market capitalization” means, we need to understand what “market capitalization” means.
5.B.2. BSE INDICES
➢ SENSEX
➢ MIDCAP
➢ SMALLCAP
48
M.com Part-2 2019-20 Capital Markets
➢ BSE-100
➢ BSE-200
➢ BSE-500
➢ BSE IT Index
➢ BSE Metal Index
➢ NIFTY
➢ CNX IT
➢ BANK NIFTY
➢ CNX100
49
M.com Part-2 2019-20 Capital Markets
CHAPTER 6:
INSTRUMENTS IN INDIAN CAPITAL MARKET
A bond that sells at a significant discount from par value and has no coupon rate or
lower coupon rate than the prevailing rates of fixed-income securities with a similar risk
profile.
50
M.com Part-2 2019-20 Capital Markets
They are designed to meet the long term funds requirements of the issuer and investors
who are not looking for immediate return and can be sold with a long maturity of 25-30 years
at adept discount on the face value of debentures.
A warrant is a security issued by company entitling the holder to buy a given number
of shares of stock at a stipulated price during a specified period. These warrants are separately
registered with the stock exchanges and traded separately. Warrants are frequently attached to
bonds or preferred stock as a sweetener, allowing the issuer to pay lower interest rates or
dividends.
This is a debt instrument that is fully converted over a specified period into equity
shares. The conversion can be in one or several phases. When the instrument is a pure debt
instrument, interest is paid to the investor. After conversion, interest payments cease on the
portion that is converted. If project finance is raised through an FCD issue, the investor can
earn interest even when the project is under implementation. Once the project is operational,
the investor can participate in the profits through share price appreciation and dividend
payments.
51
M.com Part-2 2019-20 Capital Markets
» Stripped mortgage backed securities: Each mortgage payment is partly used to pay
down the loan’s principal and partly used to pay the interest on it
52
M.com Part-2 2019-20 Capital Markets
Benefits: In addition to other avenues, IDR is an additional investment opportunity for Indian
investors for overseas investment.
A convertible bond is a mix between a debt and equity instrument. It is a bond having
regular coupon and principal payments, but these bonds also give the bondholder the option
to convert the bond into stock. FCCB is issued in a currency different than the issuer's domestic
currency.
The investors receive the safety of guaranteed payments on the bond and are also able
to take advantage of any large price appreciation in the company's stock. Due to the equity
side of the bond, which adds value, the coupon payments on the bond are lower for the
company, thereby reducing its debt-financing costs.
6.9. Derivatives
A derivative is a financial instrument whose characteristics and value depend upon the
characteristics and value of some underlying asset typically commodity, bond, equity,
currency, index, event etc. Advanced investors sometimes purchase or sell derivatives to
manage the risk associated with the underlying security, to protect against fluctuations in
value, or to profit from periods of inactivity or decline. Derivatives are often leveraged, such
that a small movement in the underlying value can cause a large difference in the value of the
derivative.
53
M.com Part-2 2019-20 Capital Markets
A Gold Exchange Traded Fund (ETF) is a financial instrument like a mutual fund
whose value depends on the price of gold. In most cases, the price of one unit of gold ETF
approximately reflects the price of 1 gram of gold. As the price of gold rises, the price of the
ETF is also expected to rise by the same amount. Gold exchange-traded funds are traded on
the major stock exchanges including Zurich, Mumbai, London, Paris and New York There are
also closed-end funds (CEF's) and exchange-traded notes (ETN's) that aim to track the gold
price.
54
M.com Part-2 2019-20 Capital Markets
CHAPTER 7:
EQUITY MARKET IN INDIA
The Indian Equity Market is more popularly known as the Indian Stock Market. The
Indian equity market has become the third biggest after China and Hong Kong in the Asian
region. The Indian financial markets have also grown considerably. The market capitalization
of the equity market (National Stock Exchange) has grown from approximately 6.5 trillion
in2000–01 to approximately 60 trillion in 2009–10 and further to approximately 61 trillion in
2011–12.The market was slow since early 2007 and continued till the first quarter of 2009.
» Speculation:
55
M.com Part-2 2019-20 Capital Markets
The stock exchanges are also fashionable places for speculation. In a financial context,
the terms "speculation" and "investment" are actually quite specific. For instance, although the
word "investment" is typically used, in a general sense, to mean any act of placing money in
a financial vehicle with the intent of producing returns over a period of time, most ventured
money—including funds placed in the world's stock markets—is actually not investment but
speculation.
BSE is the oldest stock exchange in Asia. The extensiveness of the indigenous equity
broking industry in India led to
the formation of the Native Share
Brokers Association in 1875,
which later became Bombay
Stock Exchange Limited (BSE).
BSE is widely recognized due
to its pivotal and preeminent role
in the development of the Indian
capital market.
In 1995, the trading
system transformed from open
outcry system to an online screen-based order-driven trading system.
The exchange opened up for foreign ownership (foreign institutional investment).
» Allowed Indian companies to raise capital from abroad through ADRs and GDRs.
» Expanded the product range (equities/derivatives/debt).
» Introduced the book building process and brought in transparency in IPO issuance.
» Depositories for share custody (dematerialization of shares).
» Internet trading (e-broking).
BSE has a nation-wide reach with a presence in more than 450 cities and towns of
India. BSE has always been at par with the international standards. It is the first exchange in
India and the second in the world to obtain an ISO 9001:2000 certifications.
56
M.com Part-2 2019-20 Capital Markets
The equity market capitalization of the companies listed on the BSE was US$1.63
trillion as of December 2011, making it the 4th largest stock exchange in Asia and the 8th
largest in the world. The BSE has the largest number of listed companies in the world.
As of December 2011, there are over 5,085 listed Indian companies and over 8,196
scrips on the stock exchange, the Bombay Stock Exchange has a significant trading volume.
Though many other exchanges exist, BSE and the National Stock Exchange of India account
for the majority of the equity trading in India.
57
M.com Part-2 2019-20 Capital Markets
» Investors can trade at the same price from anywhere in the country since inter-market
operations are streamlined coupled with the countrywide access to the securities.
» Delays in communication, late payments and the malpractice’s prevailing in the
traditional trading mechanism can be done away with greater operational efficiency
and informational transparency in the stock market operations, with the support of
total computerized network.
» OTCEI has widely dispersed trading mechanism across the country which provides
greater liquidity and lesser risk of intermediary charges.
» Greater transparency and accuracy of prices is obtained due to the screen-based scrip
less trading.
» Since the exact price of the transaction is shown on the computer screen, the investor
gets to know the exact price at which she/he is trading.
» Faster settlement and transfer process compared to other exchanges.
58
M.com Part-2 2019-20 Capital Markets
CHAPTER 8:
DERIVATIVE MARKETS IN INDIA
The emergence of the market for derivative products such as futures and forwards can
be traced back to the willingness of risk-averse economic agents to guard themselves against
uncertainties arising out of price fluctuations in various asset classes. This instrument is used
by all sections of businesses, such as corporate, SMEs, banks, financial institutions, retail
investors, etc.
» Hedgers face risk associated with the price of an asset. They belong to the business
community dealing with the underlying asset to a future instrument on a regular basis.
They use futures or options markets to reduce or eliminate this risk.
» Speculators have a particular mindset with regard to an asset and bet on future
movements in the asset’s price. Futures and options contracts can give them an extra
leverage due to margining system.
» Arbitragers are in business to take advantage of a discrepancy between prices in two
different markets. For example, when they see the futures price of an asset getting out
of line with the cash price, they will take offsetting positions in the two markets to
lock in a profit.
I. Forwards:
II. Futures:
Futures Terminology
» Spot Price:
60
M.com Part-2 2019-20 Capital Markets
» Contract Cycle:
The period over which a contract trades. The index futures contracts on the NSE have
one month, two months and three months expiry cycles that expires on the last Thursday of
the month. Thus a contract which is to expire in January will expire on the last Thursday of
January.
» Expiry Date:
It is the date specified in the futures contract. This is the last day on which the contract
will be traded, at the end of which it will cease to exist.
» Contract Size:
It is the quantity of asset that has to be delivered under one contract. For instance, the
contract size on NSE’s futures market is 200 Nifty.
» Basis:
In the context of financial futures, basis can be defined as the futures price minus the
spot price. There will be different basis for each delivery month, for each contract. In a normal
market, basis will be positive; this reflects that the futures price exceeds the spot prices.
» Cost Of Carry:
The relationship between futures price and spot price can be summarized in terms of
what is known as the cost of carry. This measures the storage cost plus the interest paid to
finance the asset less the income earned on the asset.
» Initial Margin:
The amount that must be deposited in the margin account at the time when a futures
contract is first entered into is known as initial margin.
» Mark To Market:
In the futures market, at the end of each trading day, the margin account is adjusted to
reflect the investor’s gain or loss depending upon the futures closing price. This is called
Marking-to-market.
61
M.com Part-2 2019-20 Capital Markets
» Maintenance Margin:
This is somewhat lower than the initial margin.
This is set to ensure that the balance in the margin account never becomes negative. If
the balance in the margin account falls below the maintenance margin, the investor receives a
margin call and is expected to top up the margin account to the initial margin level before
trading commences on the next day.
Advantages Of Stock Futures Trading:
» Investing in futures is less costly as there is only initial margin money to be deposited.
» A large array of strategies can be used to hedge and speculate; with smaller cash
outlay there is greater liquidity.
III. Options:
An option is a contract, or a provision of a contract, that gives one party (the option
holder) the right, but not the obligation, to perform a specified transaction with another party
(the option issuer or option writer) according to the specified terms. The owner of a property
might sell another party an option to purchase the property any time during the next three
months at a specified price. For every buyer of an option there must be a seller. The seller is
often referred to as the writer. As with futures, options are brought into existence by being
traded, if none is traded, none exists; conversely, there is no limit to the number of option
contracts that can be in existence at any time. As with futures, the process of closing out
options positions will cause contracts to cease to exist, diminishing the total number.
Thus an option is the right to buy or sell a specified amount of a financial instrument
at a pre-arranged price on or before a particular date.
There are two options which can be exercised:
62
M.com Part-2 2019-20 Capital Markets
CHAPTER 9:
COMMODITY DERIVATIVES IN INDIA
9.1.A. NCDEX
It is the largest commodity derivatives exchange in India and is the only commodity
exchange promoted by national level institutions. NCDEX was incorporated in 2003 Under
the Companies Act, 1956 and is regulated by the Forward Market Commission in respect of
the futures trading in commodities. NCDEX is located in Mumbai. NCDEX is a closely held
private company which is promoted by national level institutions and has an independent
Board of Directors and professionals not having vested interest in commodity markets.
9.1.B. MCX
MCX is recognized by the government of India and is amongst the world’s top three
bullion exchanges and top four energy exchanges. MCX’s headquarter is in Mumbai and
facilitates online trading, clearing and settlement operations for the commodities futures
market in the country.
» MCX is India's No. 1 commodity exchange with 83% market share in 2009
» The exchange's main competitor is National Commodity & Derivatives Exchange Ltd.
» The highest traded item is gold.
» As of early 2010, the normal daily turnover of MCX was about US$ 6 to 8 billion.
» MCX now reaches out to about 800 cities and towns in India with the help of about
126,000 trading terminals.
» MCX COMDEX is India's first and only composite commodity futures price index.
63
M.com Part-2 2019-20 Capital Markets
CHAPTER 10:
SECURITIES EXCHANGE BOARD OF INDIA
10.1.A. History
Initially SEBI was a non statutory body without any statutory power. However in 1995,
the SEBI was given additional statutory power by the Government of India through an
amendment to the securities and Exchange Board of India Act 1992. In April, 1998 the SEBI
was constituted as the regulator of capital market in India under a resolution of the Government
of India.
10.1.B. Introduction
Securities and Exchange Board of India (SEBI) has been established with the prime
mandate to protect the interest of investors in securities. The Securities and Exchange Board
of India (SEBI) is the regulatory authority established under the SEBI Act 1992, in order to
protect the interests of the investors in securities as well as promote the development of the
capital market. It involves regulating the business in stock exchanges; supervising the working
of stock brokers, share transfer agents, merchant bankers, underwriters, etc; as well as
prohibiting unfair trade practices in the securities market. An investor enjoys investing, if
64
M.com Part-2 2019-20 Capital Markets
10.1.D. Responsibilities
SEBI has to be responsive to the needs of three groups, which constitute the market:
» To protect the interests of investors through proper education and guidance as regards
their investment in securities. For this, SEBI has made rules and regulation to be
followed by the financial intermediaries such as brokers, etc. SEBI looks after the
complaints received from investors for fair settlement. It also issues booklets for the
guidance and protection of small investors.
» To regulate and control the business on stock exchanges and other security markets.
For this, SEBI keeps supervision on brokers. Registration of brokers and sub-brokers
is made compulsory and they are expected to follow certain rules and regulations.
Effective control is also maintained by SEBI on the working of stock exchanges.
» To register and regulate the working of mutual funds including UTI (Unit Trust of
India). SEBI has made rules and regulations to be followed by mutual funds. The
purpose is to maintain effective supervision on their operations & avoid their unfair
and anti-investor activities.
65
M.com Part-2 2019-20 Capital Markets
» To regulate and control the fraudulent & unfair practices which may harm the investors
and healthy growth of capital market.
» To conduct inspection, inquiries & audits of stock exchanges, intermediaries and self-
regulating organizations and to take suitable remedial measures wherever necessary.
This function is undertaken for orderly working of stock exchanges & intermediaries.
» To restrict insider trading activity through suitable measures. This function is useful for
avoiding undesirable activities of brokers and securities scams.
66
M.com Part-2 2019-20 Capital Markets
CHAPTER 11:
RECENT DEVELPOMENTS IN INDIAN CAPITAL
MARKET
67
M.com Part-2 2019-20 Capital Markets
This signifies that most of the money coming in system of primary market are from IPO and
right issues.
By industry, the miscellaneous category in the industry classification raised 44.9 percent of the
resources mobilized in 2018-19 followed by Finance (20.5 per cent), Hotels (9.0 per cent),
Textiles (7.3 per cent) and Banking/FIs (6.2 per cent). There were 14 mega issues in 2018-19
compared to 48 mega issues in 2017-18. Mega issues = issues size > INR 300 Cr.
68
M.com Part-2 2019-20 Capital Markets
Both Sensex and Nifty reached their respective all-time highs of 38,897 and 11,739 on August
28, 2018
69
M.com Part-2 2019-20 Capital Markets
Definition
• Portfolio manager is a body corporate
• who advises or directs or undertakes on behalf of the client
• management or administration of a portfolio of securities or the funds of the client.
Minimum amount by each investor - Rs. 25 lacs
SEBI is considering to double or even quadruple this amount to keep small investor away from
PMS
Current Scenario –
• India is home to the fourth largest population of HNIs in the Asia-Pacific region
• Total AUM increased under PMS increased by 9% from 2018 to 2019 to Rs. 16 trillion
Definition –
• Privately pooled investment
• collects funds from sophisticated investors (Indian or foreign)
• for investing it in accordance with a defined investment policy for the benefit of its investors.
Current Scenario
An Infrastructure Investment Trust (InvITs) is like a mutual fund, which enables direct
investment of small amounts of money from possible individual/institutional investors in
infrastructure to earn a small portion of the income as return.
REIT or Real Estate Investment Trust refers to an entity created with the sole purpose of
channeling investible funds into operating, owning or financing income-producing real estate.
Benefits-
1. Providing of wider and long-term re-finance for existing infrastructure projects.
2. Freeing up of current developer capital for reinvestment into new infrastructure projects
3. Refinancing/takeout of existing high cost debt with long-term low-cost capital and help
banks free up/reduce loan exposure
70
M.com Part-2 2019-20 Capital Markets
CHAPTER 12:
RESEARCH METHODLOGY
To be able to estimate the reliability of a report, the methods which it is based upon
must be considered. Hence, this chapter, methodology, will give the reader an insight into my
research process, selection and data collection.
71
M.com Part-2 2019-20 Capital Markets
72
M.com Part-2 2019-20 Capital Markets
CHAPTER 13:
ANALYSIS OF PRIMARY DATA
QUESTIONNAIRE
Name:
Occupation:
1. What is your age?
BELOW 20
21-40
41-50
Above 50
2. Products offered through primary and secondary markets?
Advertisement
Company Sales force
Friends / Relatives
Magazines /Newspaper
If any other, please specify………………………………
73
M.com Part-2 2019-20 Capital Markets
SEBI
IRDA
AMFI
RBI
5. What are the factors which you consider while investing in capital
markets?
Return capital
Liquidity appreciation
Convenience Risk
Tax Saving
Primary market
Secondary market
1lac to 3 lacs
3lacs to 5lacs
5 lacs to 10lacs
more than 10 lacs
74
M.com Part-2 2019-20 Capital Markets
9. How long you prefer to keep your money when invested through
secondary market?
10. How much return you expect from secondary market investment?
10% to 20%
20% to 30%
30% to 50%
More than 50%
75
M.com Part-2 2019-20 Capital Markets
CHAPTER 14:
PRIMARY DATA ANALYSIS – QUESTIONNAIRE
FINDINGS
Sample size-30
BELOW 20
21-40
41-50
Above 50
AGE GROUP
12
10
6
AGE GROUP
0
BELOW 20 21-40 41-50 ABOVE 50
76
M.com Part-2 2019-20 Capital Markets
77
M.com Part-2 2019-20 Capital Markets
Advertisement
Company Sales force
Magazines /Newspaper
Friends / Relatives
If any other, please specify………………………………
78
M.com Part-2 2019-20 Capital Markets
SEBI
IRDA
AMFI
RBI
Controller
25
20
15
Controller
10
0
SEBI IRDA AMFI RBI
79
M.com Part-2 2019-20 Capital Markets
5. What are the factors which you consider while investing in capital
markets?
Return capital
Liquidity appreciation)
Convenience Risk
Tax Saving
20
18
16
14
12
10
8
6
4
2
0
Returns Tax Saving Liquidity Convenience Risk
80
M.com Part-2 2019-20 Capital Markets
Primary market
Secondary market
Preference
20
18
16
14
12
10
Preference
8
6
4
2
0
Primary Market Secondary Market
81
M.com Part-2 2019-20 Capital Markets
20
15
0
Stock Broking Company Through Banks
82
M.com Part-2 2019-20 Capital Markets
1lac to 3 lacs
3lacs to 5lacs
5 lacs to 10lacs
more than 10 lacs
Series 1
14
12
10
6 Series 1
4
0
1lac to 3 lacs 3lacs to 5 lacs 5lacs to 10 lacs more than 10
lacs
83
M.com Part-2 2019-20 Capital Markets
9. How long you prefer to keep your money when invested through
secondary market?
Investment Horizon
12
10
6
Investment Horizon
4
0
Less than 6 6 months to 1 year to 3 more than 3
months 1 year years years
84
M.com Part-2 2019-20 Capital Markets
10. How much return you expect from secondary market investment?
10% to 20%
20% to 30%
30% to 50%
More than 50%
Returns
12
10
6
Returns
0
10%to 20% 20% to 30% 30% to 50% more than 50%
85
M.com Part-2 2019-20 Capital Markets
CHAPTER 15:
CONCLUSION
86
M.com Part-2 2019-20 Capital Markets
BIBLIOGRAPHY
» www.sbimf.com
» www.moneycontrol.com
» www.amfiindia.com
» www.onlineresearchonline.com
» www.mutualfundsindia.com
» www.nse.com
» www.bse.com
» www.sebi.gov.in
» www.rbi.gov.in
» Beginners guide to capital Markets
» Capital market and securities laws (module ii paper 6)
» www.investopedia.com
» Capital Markets and NSDL-Overview National - Handbook for NSDL Depository
Operations Module
87
M.com Part-2 2019-20 Capital Markets
88