CAPITAL MARKET

 PROLOGUE
 DEFINITION OF CAPITAL MARKET
 FEATURES
 MAIN ELEMENTS
 STOCK MARKET
 INDIAN ECONOMY AND CAPITAL MARKET AT A
GLANCE
 WHY INVEST IN INDIAN CAPITAL MARKETS?
 CONCLUSION

CAPITAL MARKET
WHAT IS CAPITAL
MARKET

?
CAPITAL MARKET
 PROLOGUE

Capital markets are a sub-part of the financial

system. Conceptually, the financial system
includes a complex of institutions and
mechanism which affects includes a complex of
institutions and mechanism which affects the
generation of savings and their transfers to
those who will invest. It may be said to be made
of all those channels through which savings
become available for investments
CAPITAL MARKET
 DEFINITION OF CAPITAL MARKET

Capital market can be defined as:

“A market for medium to long-term financial
instruments. Financial instruments traded in the
capital market include shares, and bonds issued by
the Governments, Corporate borrowers and financial
institutions.”

CAPITAL MARKET
 In other words:
“The capital market (securities markets) is
the market for securities, where
companies and the government can raise
long-term funds. The capital market
includes the stock market and the bond
market”

CAPITAL MARKET
CAPITAL MARKET
Instruments

CAPITAL MARKET
Functions of Capital Markets
 Mobilize days long term savings to finance
long term investments
 Provide risk capital in form of equity or
quasi equity to entrepreneurs
 Encourage broader ownership of productive
assets
 Provide liquidity with a mechanism
enabling the investor to sell financial assets
CAPITAL MARKET
Functions of Capital Markets
 Lower the cost of transactions improve the
efficiency of capital allocation
 Disseminate information efficiently
enabling participants to develop an
informed opinion about their investment
 Enable wider participation by enhancing the
width of the market by encouraging
participation through networking
institutions and associating individuals
CAPITAL MARKET
MAIN ELEMENTS
OF
CAPITAL MARMET

CAPITAL MARKET
THREE ELEMENTS OF CAPITAL MARKET

 FINANCIAL ASSETS/INSTRUMENTS/SECURITIES

 FINANCIAL INTERMEDIARIES

 FINANCIAL MARKETS

CAPITAL MARKET
 THE MAIN ELEMENTS

FINANCIAL ASSETS/ INSTRUMENTS/SECURITIES

The tangible/physical asset is one whose value depends

on its physical properties such as buildings, machines,
furniture, vehicles and so on.
The entity/economic unit
that offers the future cash flows is the issuer of the
financial ‘instrument’ and the owner of the security is
the investor. Depending upon the nature of claim/return,

an instrument may be:

CAPITAL MARKET
Instruments

EQUITY CAPITAL:
Equity capital represents ownership capital, as equity
shareholder collectively own the company. They
enjoy the rewards and risks of ownership.

DEBENTURE/BONDS: Debenture/bonds is a debt instrument

indicating that a company has borrowed certain sum of
money and promise to repay it in future under clearly defined
terms.

CAPITAL MARKET
 FINANCIAL INTERMEDIARIES:

Financial intermediaries are institutions that channelise

the savings if investors into investments/loans. As

institutional source of finance ,they act as a link
between the savers and the investors which results in
institutionalization of personal savings. Their main
functions is to convert direct financial assets into
indirect securities. The indirect securities offer to
the individual investor better investor alternative then
the direct/primary security by pooling which it is
created, for example, units of mutual funds.

CAPITAL MARKET
 FINANCIAL MARKETS:

Financial markets perform a crucial function in the

financial system as facilitating organizations. Unlike
financial intermediaries, they are not a source of funds
but are a link and provide a forum in which suppliers of
funds and demanders of loans/investments can transact
business directly

CAPITAL MARKET
 TYPES OF MARKET

 PRIMARY MARKET

 SECONDARY MARKET

CAPITAL MARKET
PRIMARY MARKET

– The primary market deals with the issue of new

instruments by the corporate sector such as equity
shares, preference shares and debentures.
– Function of primary market-
ORIGINATION: is the work of investigation and
analysis and processing of new issue proposals.

UNDERWRITING: is a form of guarantee that the new

issue would be sold by eliminating the risk arising
from uncertainty of public response
.
DISTRIBUTION: isCAPITAL
the sale of the ultimate investors.
MARKET
CONTD …
 Abolition of Controller of Capital Issues in 1992.
 Constitution of Securities and Exchange Board of India
(SEBI) as the apex regulator.
 for capital markets.
 Free pricing of equity.
 Introduction of book building for raising capital
 Relaxation in equity dilution norms allowing large unlisted
firms esp. in the technology.
 Progressive changes in the entry norms enabling all
companies to access markets.

CAPITAL MARKET
SECONDARY MARKETS …
 Stock exchanges discharge three vital functions in the
orderly growth of capital formation:

1. Nexus between savings and investments

2. Market place and

3. Continuous price formation

CAPITAL MARKET
CAPITAL MARKET AT A GLANCE

 Second fastest growing economies after China with an

average annual growth rate of more than 8 per cent in the
last three years.
 Indian companies may issue shares under Employee Stock
Option Scheme to its employees who are resident outside.
 Foreign Institutional Investors are allowed to invest in
India under the Foreign Institutional Investment scheme.
 Private equity is allowed as an alternative form of
investment

CAPITAL MARKET
COND …
 NSE (India’s National Stock Exchange) is the third largest
in the world in the number of trades after NYSE and
NASDAQ.
 India has 23 small and 2 big stock exchanges.
 The 2 big stock exchanges (National Stock Exchange and
Bombay Stock Exchange) account for 90 per cent of trade.
 Over 7000 listed companies on the stock exchanges –
largest in the world.

CAPITAL MARKET
COND …
 39 mutual funds with over 500 schemes for investment.
 There are 86 venture capital funds and 54 foreign venture
capital investors.
 FIIs can invest on behalf of their clients through sub-
accounts.
 For normal FIIs, limit for investment in equity is at least
70 per cent while the rest could be invested in debt up to a
maximum limit of 30 per cent.
 9040 brokers in cash segment and 1064 in derivative
segment of the market.
 122 investment bankers in the market.
 58 under writers to support primary issues.
 34 foreign venture capital funds &120 Portfolio managers
CAPITAL MARKET