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Capital Market

By: Prof Amarpreet Singh

bangaamar@hotmail.com

Introduction
Capital Market
Definition: Capital market is a market for long-term debt and equity shares. In this market, the capital funds comprising of both equity and debt are issued and traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges. Capital market can be further divided into primary and secondary markets.

Example Stock Market, Bond Market etc

Need of Capital Market  Long Term Capital  Proper Channelization of funds  Promotion of industrial growth .

Functions of Capital Market  Wider Reach  Operational Efficiency  Valuation  Dissemination of information .

Role or Functions of Capital Market  Mobilization of Savings  Capital Formation  Provision of Investment Avenue  Speed up Economic Growth and Development  Proper Regulation of Funds  Service Provision  Continuous Availability of Fund .Significance.

MAIN ELEMENTS OF CAPITAL MARMET CAPITAL MARKET .

THREE ELEMENTS OF CAPITAL MARKET  FINANCIAL ASSETS/INSTRUMENTS/SECURITIES  FINANCIAL INTERMEDIARIES  FINANCIAL MARKETS CAPITAL MARKET .

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also called aftermarket. E. bonds. IPO( Initial public offering)  Secondary Market  The secondary market. which is then used to fund operations or expand the business. is the financial market where previously issued securities and financial instruments such as stocks. E. options and futures are bought and sold.BSE .g.g. NSE.  Issuing company or group receives cash proceeds from the sale.Types of Capital Market  Primary Market  Provides the channel for sale of new securities such as shares and Debentures.

Therefore it is also called the new issue market (NIM).  The primary market performs the crucial function of facilitating capital formation in the economy. .  The primary market is the market where the securities are sold for the first time.  Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.  In a primary issue. the securities are issued by the company directly to investors.Features of primary markets are:  This is the market for new long term equity capital.

.  Secondary market provides an efficient platform for trading of his securities.Features of Secondary markets are:  Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange.  Comprises of equity markets and the debt markets.

Secondary Market Products  Equity Shares  Preferred Stock / Preference shares  Government securities (G-Secs)  Debentures  Bond .

The gilt -Edged securities  Risk free  Securities guaranteed by government – principal as well as interest.  The issue market .  Secondary market : Large stockbrokers deals in old issues and the RBI keeps securities of various maturities and interest rates to meet the demand .RBI does all the issues of central as well as of the state governments .

GIC Provident funds . These institutions mobilize savings and invest in these securities.The gilt –Edged securities The dealers in gilt –edged market are mainly institutions who have the statutory requirements to invest their funds in the government securities – like LIC.  Discriminatory auctions : The process of auctioning a single unit to the highest bidder and also the multiple units to the highest bidder till the stock exhaust.  . These are called captive market.

Corporate Security Market  Primary market  secondary market. .

Financing working capital .Debt refinancing .INITIAL PUBLIC OFFER(IPO)  What is IPO?  Reasons for going public .Exit route for existing investors .Raising funds to finance capital expenditure .

INITIAL PUBLIC OFFER(IPO) (contd)…. • Cost of maintaining investors. • Increases visibility. • Commands better pricing. • Continuous disclosure. • Enables exchange of shares. • Increased monitoring. DISADVANTAGES OF GOING PUBLIC • Dilution of ownership • Involves substantial expenses. ADVANTAGES OF GOING PUBLIC • Facilitates future funding. • Valuation of company.. • Provides liquidity. • Listing fees. . • Takes substantial amount of time & efforts.

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cleared and settled .SECONDARY MARKET  Stock Exchanges provide a platform to trade  The securities are traded.

Indian Financial System – An Overview STRUCTURE OF FINANCIAL MARKETS IN INDIA Financial Markets in India Debt Market Primary / Secondary Forex Market Capital Market Primary / Secondary & Depository Insurance Life/General Banks (including RRBs. Venture Funds. co-op etc) Mutual Funds. Investment Bonds RBI RBI SEBI IRDA RBI RBI/SEBI REGULATORY AUTHORITY .

Thank You .