CAPITAL

MARKET
 CAPITAL MARKET
The market where investment
instruments like bonds, equities
and mortgages are traded is
known as the capital market.
The primal role of this market is to
make investment from investors
who have surplus funds to the
ones who are running a deficit.
 The capital market offers both long term
and overnight funds.
The different types of financial instruments
that are traded in the capital markets are:
> equity instruments
> credit market instruments,
> insurance instruments,
> foreign exchange instruments,
> hybrid instruments and
> derivative instruments.
 Nature of capital market
The nature of capital market is brought
out by the following facts:
It Has Two Segments

It Deals In Long-Term Securities

It Performs Trade-off Function

It Creates Dispersion In Business

Ownership
It Helps In Capital Formation

It Helps In Creating Liquidity

 Types of capital market
There are two types of capital
market:
Primary market,
Secondary market
 Primary Market
It is that market in which
shares, debentures and other
securities are sold for the first
time for collecting long-term
capital.
This market is concerned with

new issues. Therefore, the

primary market is also called
NEW ISSUE MARKET.
 In this market, the flow of funds is
from savers to borrowers (industries),
hence, it helps directly in the capital
formation of the country.
The money collected from this
market is generally used by the
companies to modernize the plant,
machinery and buildings, for
extending business, and for setting
up new business unit.
 Features of Primary
Market
It Is Related With New Issues
It Is Related With New Issues
It Has No Particular Place
It Has Various Methods Of Float Capital:
Following are the methods of raising
capital in the primary market:
i) Public Issue
ii) Offer For Sale
iii) Private Placement
iv) Right Issue
v) Electronic-Initial Public Offer
It comes before Secondary Market
 Secondary Market
The secondary market is that
market in which the buying and
selling of the previously issued
securities is done.
The transactions of the secondary

market are generally done through

the medium of stock exchange.
The chief purpose of the secondary

market is to create liquidity in

securities.
 If an individual has bought
some security and he now
wants to sell it, he can do so
through
. the medium of stock
exchange to sell or purchase
through the medium of stock
exchange requires the
services of the broker
presently, their are 24 stock
exchange in India.
 Features of Secondary
Market
It Creates Liquidity
It Comes After Primary Market
It Has A Particular Place
It Encourage New Investments
 CAPITAL MARKET RISK
Investment in long term
financial instruments is
accompanied by high capital
market risks. Since there are two
types of capital markets- the
stock market and the bond
market.
So risks are present in both the

market.
Risk in the Stock Market
Stock prices keep fluctuating
over a wide range unlike the bank
deposits or government bonds.
The efficient market hypothesis

shows the effect of fundamental

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

certain psychological factors that

shape the stock market prices.
 Sometimes the market behaves
illogically to any economic news.
The stock market prices can be diverted
in any direction in response to press
releases, rumors and mass panic.

The stock market prices are also

subject to speculation. In the short run
the stock market prices may be very
volatile due to the occurrences of the
fast market changing events.
 Risk in the Bond Market
Capital market risk in the bond
market arises due to interest rate
changes. There is an inverse
relationship existing between the
interest rate and the price of the
bond. Hence the bond prices are
sensitive to the monetary policy of
the country as well as economic
changes.
 INDIAN CAPITAL MARKET
TheIndian Capital Marketis one of the
oldest capital markets in Asia which
evolved around 200 years ago.
Chronology of the Indian capital
markets
>1830s:Trading of corporate shares
and stocks in Bank and cotton Presses in
Bombay.
>1850s:Sharp increase in the capital
market brokers owing to the rapid
development of commercial enterprise.
 >1860-61:Outbreak of
theAmerican Civil Warand
'Share Mania' in India.
>1894:Formation of
theHamada Shares and Stock
Brokers Association.
>1908:Formation of
theCalcutta Stock Exchange
Association.
 The pattern of growth in the
Indian capital markets in the
post independence regime
can be analyzed from the
following graphs:
From the above graph we
find that the number of
stock exchanges in India
increased at a crawling pace
till 1980 but witnessed a
sharp rise thereafter till
1995.
The following diagram shows the
trend in the no. of listed
companies participating in
theIndian Capital Market. Here
again we register a sharp rise
after 1980. The number of stocks
issued by the listed companies
also shows a similar trend:
 CAPITAL MARKET REPORT

TheCapital Market Reportis

prepared by thecapital market
analystsand is of various types.
There are four different kinds
ofcapital market reports: >10-K
Reports,
>10-Q Reports,
>Form 8-K Reports,
>the Proxy Statements.
 10-K Reports
This is a kind ofannual reportof the
company that contains information of the
company's business, finances and
management.
This informs us about the bylaws of the
company, other legal documents and the
lawsuits that the company may have a hand in.
10-Q Reports or the Quarterly Reports
The quarterly reports are the abridged form
of the annual reports.
They are issued at an interval of three months.
They consist offinancial statementsand list the
material events that have occurred in the
company.
 Form 8 K Report
The companies that are publicly
traded are required to maintain the
Form 8-K where they record any
material eventthat might have affected
the financial status of the company
Proxy Statements
The proxy statement consists of
business issues that need to be
discussed in the meeting and a ballot
for voting for the purpose of forming the
new Board of directors.
 CAPITAL MARKET
INVESTMENT
Capital market investmenttakes place
through thebond marketand thestock
market.
The capital market is basically the
financial pool in which different companies
as well as the government can raise long
term funds.
Capital market investmentthat takes
place through the bond and the stock
market may be elucidated in the following
heads.
Capital market investments in the stock
market
The stock market is basically the trading
groundcapital market investmentin the
following:
i) Companys stocks
ii) Derivatives
iii) Other securities
The capital market investments in the stock
market take place by:
1) Small individual stock investors
2) Large hedge fund traders.
The capital market investments can occur
either in:
1) Thephysical marketby a method known
as the open outcry.
 2) Trading can also occur in thevirtual
exchangewhere trading is done in the
computer network.
The investors in the stock market have the

liberty to buy or sell the stock that they are

holding at their own discretion unlike the case
ofgovernment securities, bonds or real estate.
The stock exchanges basically function as

theclearing house for such liquid transactions.

The capital market investments in the stock

market are also done through the derivative

instruments like thestock optionsand
thestock futures.
 Capital Market Investments in the Bond
Market
The bond market is afinancial
marketwhere the participants buy and
selldebt securities.
The bond market is also differently known as
the debt, credit or fixed income market.
There are different types of bond markets
based on the different types of bonds that
are traded. They are:
Corporate,
Government and agency,
Municipal,
Bonds backed by mortgages & assets,
Collateralized Debt Obligation.
 The bonds, except for the corporate
bonds do not have formal exchanges
but are tradedover-the- counter.
Individual investors are attracted to the
bond market and make investments
through thebond funds, closed-end-
funds or the unit investment trusts.
Another way of investing directly in the
bond issue is theExchange-traded-
funds.
The capital market investment in the
bond market is done by:
Institutional investors
Governments, traders and
Individuals.
BY:-
Akansha

Singh