Overview of

Financial
Markets
Dr. G. V. Kesava Rao
B.Sc., MBA, PGDFM, LL.M (Research), FDP (IIM A), A.C.S., Ph. D
Qualified Insolvency Professional – IBBI
Professor, Advocate, Company Secretary
Financial System
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FINANCIAL O
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FINANCIAL E
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MARKETS R
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By Dr. G V Kesava Rao 2

By Dr. G V Kesava Rao 3
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Financial Market

▪ Financial markets are the

centers or arrangements that
provide facilities for buying
and selling of financial claims
and services.

By Dr. G V Kesava Rao 5

Financial Market
▪ The corporations, financial
institutions, individuals and
governments trade in financial
products in these markets
either directly or through
brokers and dealers on
organised exchanges or off-
exchanges. By Dr. G V Kesava Rao 6
Financial Market
▪ The participants on the demand and
supply sides of these markets are
financial institutions, agents,
brokers, dealers, borrowers,
lenders, savers and others who are
interlinked by the laws, contracts,
covenants and communication
networks.
By Dr. G V Kesava Rao 7
By Dr. G V Kesava Rao 8
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Money Market
▪ Money market primarily deals
with the financial claims of
short term, which have a
maturity of less than one year.
▪ Money market is the center for
dealings, mainly of short-term
character in monetary assets.
By Dr. G V Kesava Rao 10
Money Market
▪ It meets the short-term
requirements of the borrowers
and provides liquidity to the
lenders.
▪ The money market is thus the
market of overnight to short term
financial assets that were close
substitutes of money.
By Dr. G V Kesava Rao 11
Money Market
▪ It is the place where short term
surplus investible funds at the
disposal of the financial and
other institutions and individuals
are bid by borrowers, other
comprising institutions and
individuals and also by the
government. By Dr. G V Kesava Rao 12
Forex Market
▪ The Foreign Exchange Market is a
market where the buyers and
sellers are involved in the sale and
purchase of foreign currencies.
▪ In other words, a market where the
currencies of different countries
are bought and sold is called a
foreign exchange market.
By Dr. G V Kesava Rao 13
Forex Market

By Dr. G V Kesava Rao 14

Govt. Securities
▪ A government security is a
bond or other type of debt
obligation(s) that is/are issued
by a government with a
promise of repayment upon
the security's maturity date.
By Dr. G V Kesava Rao 15
Govt. Securities
▪ Government securities are
usually considered low-risk
investments because they are
backed by the taxing power of
a Government.
▪ They are also called “Gilt
Edged Securities”.
By Dr. G V Kesava Rao 16
Govt. Securities
▪ It consists of Government
Promissory Notes, Bearer
Bonds, Stocks or Bonds held
in Bond Ledger Account.
▪ They may be in the form of
Treasury Bills or Dated
Government Securities.
By Dr. G V Kesava Rao 17
Call Money Market
▪ Call money is short-term finance
repayable on demand, with a maturity
period of one to fourteen days or
overnight to a fortnight.
▪ It is used for inter-bank transactions.
▪ The money that is lent for one day in
this market is known as call money
and, if it exceeds one day, is referred
to as notice money.
By Dr. G V Kesava Rao 18
Call Money Market
▪ The maturity periods of call money are
extremely short and its liquidity is just
next to cash.
▪ Most of the time banks require call
money to meet the minimum
requirement of Cash Reserve Ratio
(CRR).
▪ The interest paid on call money is
called call rate.
By Dr. G V Kesava Rao 19
Treasury Bill Market
▪ Treasury Bills, also known as T-bills
are the short-term money market
instrument, issued by the central bank
on behalf of the government to curb
temporary liquidity shortfalls.
▪ These do not yield any interest but
issued at a discount.
▪ At the time of redemption, are repaid at
par i.e. when it gets matured.
By Dr. G V Kesava Rao 20
Treasury Bill Market
▪ T-bills are issued either in physical
form as a promissory note or
dematerialised form by crediting to
Subsidiary General Ledger (SGL)
Account.
▪ Participants:
▪ Individuals, firms, companies, trusts, banks,
insurance companies, provident funds, state
government and financial institutions.
By Dr. G V Kesava Rao 21
Treasury Bill Market

▪3 Types of Treasury Bills

▪91 days T-bills
▪182 days T-bills
▪364 days T-bills
By Dr. G V Kesava Rao 22
Commercial Paper
▪ Commercial Paper or CP is defined
as a short-term, unsecured money
market instrument, issued as a
promissory note by big corporations
having excellent credit ratings.
▪ As the instrument is not backed by
collateral, only large firms with
considerable financial strength are
authorised to issue the instrument.
By Dr. G V Kesava Rao 23
Commercial Paper
▪ Features
▪ The maturity period of commercial
paper lies between 30 to 270 days.
▪ It is sold at a discount but redeemed at
its par value.
▪ There is no well-developed secondary
market for commercial paper; rather
they are placed with existing investors
who intend to hold it till it gets
matured. By Dr. G V Kesava Rao 24
Commercial Paper
▪ Features
▪ The tangible net worth of the issuing
company is minimum 50 million, as per
their audited balance sheet.
▪ The issue of CP can be in denomination
Rs. 5 lakhs or multiples thereof.
▪ The company should obtain credit
ratings from a recognised credit rating
agency such as CRISIL or ICRA.
By Dr. G V Kesava Rao 25
Certificate of Deposit
▪ Certificate of Deposit (CD) implies an
unsecured, money market negotiable
instrument, issued by the commercial
bank or financial institution, either in
demat form or as a usance promissory
note, at a discount to face value at
market rates, against the amount
deposited by an individual, for a
stipulated time.
By Dr. G V Kesava Rao 26
Certificate of Deposit
▪ The CDs are issued by the bank at a
discount to face value, at market-related
rates, ranging from 3 months to one
year.
▪ The minimum issue size of a certificate
of deposit is Rs. 5,00,000 to a single
investor. Moreover, when the certificate
of deposit exceeds Rs. 5,00,000, it
should be in multiples of Rs. 1,00,000.
By Dr. G V Kesava Rao 27
Corporate Debt Market
▪ Debt securities issued by a for-profit
company instead of a government.
▪ Corporate bonds are a major way
companies raise funds for their
operations or for a specific project.
▪ The risk of a corporate bond for a
bondholder depends on the
creditworthiness of the issuing
company.
By Dr. G V Kesava Rao 28
Corporate Debt Market
▪ The most important recent
development on the corporate bond
market is the migration away from
physical certificates into dematerialised
holdings at the depository.
▪ This led to a sharp rise in the stock and
settlement of dematerialised corporate
debt securities at National Securities
Depository Limited (NSDL).
By Dr. G V Kesava Rao 29
Corporate Debt Market
▪ Contrary to the common notion that
corporate debt in India is extremely
difficult to trade, a significant volume of
such transactions are taking place.
▪ It has also been observed in recent
years that most of the corporate debt
paper has been issued on a private
placement basis leading to lack of
transparency and liquidity in the
corporate debt market.
By Dr. G V Kesava Rao 30
Corporate Debt Market
▪ SEBI issued guidelines on September
30, 2003 stipulating the conditions to
be complied with in respect of private
placement of debt.
▪ The Reserve Bank also issued
corresponding guidelines putting
prudential limits on banks relating to
subscription to privately placed
corporate debt.
By Dr. G V Kesava Rao 31
Corporate Debt Market
▪ To facilitate the growth of corporate
debt market, the Reserve Bank is
actively considering introduction of
repos in corporate bonds, to be settled
through CCIL.
▪ Participation of corporate in repo
market is also being considered
positively.
By Dr. G V Kesava Rao 32
Capital Market
▪ Capital market is a market where
buyers and sellers engage in trade of
financial securities like bonds, stocks,
etc.
▪ The buying/selling is undertaken by
participants such as individuals and
institutions.
▪ This market trades mostly in long-term
securities.
By Dr. G V Kesava Rao 33
Capital Market
▪ There are two types of capital market:
▪ Primary Market
▪ The primary market is a new issue market; it
solely deals with the issues of new
securities.
▪ A place where trading of securities is done
for the first time. The main objective is
capital formation for government,
institutions, companies, etc. also known as
Initial Public Offer (IPO).
By Dr. G V Kesava Rao 34
Capital Market
▪ Secondary Market
▪ The secondary market is a place where
trading takes place for existing securities.
▪ It is known as stock exchange or stock
market.
▪ Here the securities are bought and sold
by the investors.
▪ National Stock Exchange (NSE) and
Bombay Stock Exchange (BSE).
By Dr. G V Kesava Rao 35
Derivatives Market
▪ The derivatives market is the
financial market for derivatives,
financial instruments like futures
contracts or options, which are derived
from other forms of assets.
▪ The market can be divided into two,
Exchange-traded derivatives and Over-
the-counter derivatives.
By Dr. G V Kesava Rao 36
Derivatives Market
▪ There are four kinds of
participants in a derivatives
market: hedgers, speculators,
arbitrageurs, and margin traders.
▪ There are four major types of
derivative contracts: options,
futures, forwards, and swaps.
By Dr. G V Kesava Rao 37
International Capital Market
▪ International capital markets are
the same mechanism of Capital
Markets, but in the global sphere,
in which governments, companies,
and people borrow and invest
across national boundaries.
▪ Higher returns and cheaper borrowing
costs.
▪ Diversifying risk.
By Dr. G V Kesava Rao 38
International Capital Market
▪ Capital market participants include
Foreign Institutional Investors,
Insurance Companies, Stock
Exchanges, Financial Institutions,
Corporates, Private Equity, Hedge &
Venture Capital funds, Provident Fund
Trusts & EPFO, Credit Rating
Agencies, Mutual Funds, Depositary
Participants and Public Sector
Undertakings. By Dr. G V Kesava Rao 39
International Capital Market
▪ Individuals & households,
corporations, and local, central
& foreign governments
contribute to the demand of the
International Capital Market.

By Dr. G V Kesava Rao 40

Primary Market
▪ The primary market is the
financial market where
new securities are issued
and become available for
trading by individuals and
institutions.

By Dr. G V Kesava Rao 41

Primary Market
▪ The primary market is where
companies issue a new
security, not previously traded
on any exchange.
▪ A company offers securities to
the general public to raise funds
to finance its long-term goals.
By Dr. G V Kesava Rao 42
Primary Market
▪ The primary market may also
be called the New Issue Market
(NIM).
▪ In the primary market, securities
are directly issued by
companies to investors.

By Dr. G V Kesava Rao 43

Primary Market
▪ Securities are issued either
by
▪Initial Public Offer (IPO) or
▪Further Public Offer (FPO).

By Dr. G V Kesava Rao 44

Primary Issues - Types

By Dr. G V Kesava Rao 45

Primary Issues - Procedure

▪Issuing Prospectus
▪Application of Shares
▪Allotment of Shares
▪Call(s) on Shares
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Primary Issues - Procedure
▪ Holding a General Meeting
▪ Appointment of Managers to the
Issue
▪ Appointment of various other
agencies

By Dr. G V Kesava Rao 47

Various Other Agencies
▪ Registrars to the Issue
▪ Collecting Bankers
▪ Advisors
▪ Underwriters
▪ Brokers
▪ Printers
▪ Advertising Agencies, etc.
By Dr. G V Kesava Rao 48
Primary Issues - Procedure
▪ Drafting Prospectus
▪ Intimation to Stock Exchange
▪ Approval of Prospectus
▪ Application for Listing
▪ Printing of Prospectus
▪ Pricing
▪ Underwriting
By Dr. G V Kesava Rao 49
Primary Issues - Procedure
▪ Minimum Subscription
Specification
▪ Co-ordination with bankers
▪ Minimum Subscription
▪ Allotment of Shares
▪ Refund

By Dr. G V Kesava Rao 50

SEBI Guidelines-Public Issues
▪Compliance with SEBI
Regulations – 2009
▪SEBI (Issue of Capital
and Disclosure
Requirements)
Regulations -2009
By Dr. G V Kesava Rao 51
Pricing & Timing-Public Issues
▪ The companies eligible to make public
issue can freely price their equity shares
or any security convertible at later date
into equity shares in the following cases:
▪ Public or Rights Issue by Listed
Companies
▪ Public Issue by Unlisted Companies
▪ Infrastructure Company
▪ Initial public Issue by Banks
By Dr. G V Kesava Rao 52
Pre-Issue Management
▪ Memorandum of Understanding with
Lead Manager
▪ Obtaining Appraisal Note
▪ Appointment of Other Intermediaries
▪ Inter-se Allocation of Responsibilities
▪ Preparing Prospectus
▪ Submission of Draft Offer Documents
▪ Launching of a Public Issue
By Dr. G V Kesava Rao 53
Post-Issue Management
▪ Finalisation of Basis of Allotment
(BOA)
▪ Dispatch of Share Certificates, etc.
▪ Issue of Advertisement in Newspapers
▪ Post-issue Obligations
▪ Post-issue Monitoring Reports
▪ (a) 3-day post-issue monitoring report and
▪ (b) 78-day post- issue monitoring report.

By Dr. G V Kesava Rao 54

Rights Issue
▪ A rights issue is an invitation to
existing shareholders to purchase
additional new shares in the
company.
▪ This type of issue gives existing
shareholders securities called rights.
▪ This is called Pre-emptive Right, i.e.
Right to retain the proportionate
ownership.
By Dr. G V Kesava Rao 55
Rights Issue

▪ The shareholder can purchase

new shares at a discount to the
market price on a stated future
date and thus gives
shareholders a chance to
increase their exposure to the
stock at a discount price.
By Dr. G V Kesava Rao 56
Rights Issue
▪ Until the date at which the new
shares can be purchased,
shareholders may trade the
rights on the market the same
way that they would trade
ordinary shares.
▪ Section 62(1)(a) of Companies Act,
2013.
By Dr. G V Kesava Rao 57
Management of Debt & Equity
▪ Equity financing takes the form of
money obtained from investors in
exchange for an ownership share
in the business.
▪ The main advantage to equity
financing is that the business is
not obligated to repay the money.

By Dr. G V Kesava Rao 58

Management of Debt & Equity
▪ Both debt and equity financing are
important ways for businesses to
obtain capital to fund their
operations.
▪ Deciding which to use or emphasize
depends on the long-term goals of
the business and the amount of
control managers wish to maintain.
By Dr. G V Kesava Rao 59
Management of Debt & Equity
▪ Ideally, experts suggest that
businesses use both debt and
equity financing in a commercially
acceptable ratio.
▪ This ratio, known as the debt-to-
equity ratio, is a key factor analysts
use to determine whether managers
are running a business in a sensible
manner.
By Dr. G V Kesava Rao 60
Loan Syndication
▪ Loan syndication is the process of
involving a group of lenders in funding
various portions of a loan for a single
borrower.
▪ Loan syndication most often occurs
when a borrower requires an amount
too large for a single lender to provide
or when the loan is outside the scope
of a lender's risk exposure levels.
By Dr. G V Kesava Rao 61
Loan Syndication
▪ The banks in a loan syndicate share
the risk and are only exposed to
their portion of the loan.
▪ A loan syndicate always has a
syndicate agent, which is the lead
bank that organizes the loan, its
terms, and other relevant
information.
By Dr. G V Kesava Rao 62
Venture Financing
▪ Venture capital is a form of private
equity and a type of financing that
investors provide to startup
companies and small businesses that
are believed to have long-term
growth potential.
▪ Venture capital generally comes from
well-off investors, investment banks
and any other financial institutions.
By Dr. G V Kesava Rao 63
Venture Financing
▪ However, it does not always take a
monetary form; it can also be provided
in the form of technical or managerial
expertise.
▪ For small businesses, or for up-and-
coming businesses in emerging
industries, venture capital is generally
provided by high net worth individuals
(HNWIs) – also often known as ‘angel
investors’ By Dr. G V Kesava Rao 64
Venture Financing
▪ Venture Capital can be made
in four methods:
▪ 1) Equity Financing
▪ 2) Conditional Loan
▪ 3) Income Note
▪ 4) Participating Debenture

By Dr. G V Kesava Rao 65

Private Equity
▪ Private equity refers to capital
investment made into companies that
are not publicly traded.
▪ Private equity is an alternative form of
private financing, in which funds and
investors directly invest in companies
or engage in buyouts of such
companies.
By Dr. G V Kesava Rao 66
Private Equity

▪ Among the advantages of private

equity are easy access to alternate
forms of capital for entrepreneurs and
company founders and generates
less stress for them.
▪ Private equity can take on various
forms, from complex leveraged
buyouts to venture capital.
By Dr. G V Kesava Rao 67
Mergers and Acquisitions
▪ Merger:
▪ A merger in simple words means a
fusion of two companies.
▪ It is a combination of two or more
businesses in which only one
survives and other goes out of
existence and its assets and
liabilities are taken over by the
surviving company.
By Dr. G V Kesava Rao 68
Mergers and Acquisitions
▪ Take-over / Acquisition:
▪ It may be defined as a transaction or
series of transactions whereby a
person (individual / group of
individuals) or company acquires
control over the assets of the other
company either directly by becoming
the owner of those assets or indirectly
by obtaining control of the
administration of the company.
By Dr. G V Kesava Rao 69
Mergers and Acquisitions
Types
▪ Horizontal Mergers
▪ Vertical Mergers
▪ Backward Merger
▪ Forward Merger
▪ Conglomerate Mergers
▪ Product-Extension
▪ Geographic Market-Extension
▪ Pure Conglomerate
By Dr. G V Kesava Rao 70
Financial Engineering
▪ Financial engineering is the use of
mathematical techniques to solve
financial problems.
▪ Financial engineering uses tools and
knowledge from the fields of computer
science, statistics, economics, and
applied mathematics to address
current financial issues as well as to
devise new and innovative financial
products. By Dr. G V Kesava Rao 71
Financial Engineering
▪ Financial engineers test and issue new
investment tools and methods of
analysis.
▪ Financial engineers work with
insurance companies, asset
management firms, hedge funds, and
banks.
▪ Financial engineering led to an
explosion in derivatives trading and
speculation in the financial markets.
By Dr. G V Kesava Rao 72
Any Questions?

Have Great Day