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CAPITAL MARKET IN INDIA

Capital Market
Capital is often defined as Wealth used in the production of

further Wealth. i.e Land & Building, Machines & Equipments, stock Of raw Materials etc.
The term Financial market collectively refers to all those

organizations and Institutions which lend funds to business enterprises and public authorities.
I.

The Money Market The Capital Market

II.

Structure Of Capital Market


I.

The Financial Institutions :- e.g IFCI, IDBI, Exim Bank, IDFC, LIC etc. The Securities Market:The guilt Edged Market The Corporate Securities Market

II. i. ii.

Guilt Edged Market:- The guilt edged market is

the market in government securities or the securities guaranteed( as to both principal and interest) by the government. The Corporate Securities Market:- Corporate securities market is a market where securities issued by firms(i.e shares, bonds and debentures) can be bought and sold freely.

Role of Capital Market in Indias Industrial Growth


1. 2.

For Financing Five Year Plans. Mobilization of savings and acceleration of Capital formation Promotion Of Industrial Growth Raising Long term Capital

3. 4.

Cont
5. 6. 7.

Ready and Continuous market Proper Channelization of funds Provision of variety of services

Factors Contributing to the Growth of CMI


1) Establishment of development Banks &

Industrial Financing Institutions


2) Legislative measures 3) Growth of underwriting business 4)

Growing public Confidence

Cont.
5.

Increasing awareness of Investment opportunities

6. Setting up of SEBI 7. Mutual Funds 8. Credit Ratings agencies

Problems Of Indian Capital Market The Pre- Reform Phase


As of 1992, the Bombay Stock Exchange(BSE)

was a monopoly. Trading took place by Open Outcry on the trading floor, Broker used to charge higher price than actually traded at. There was no price time priority, so users of the market were not assured that a trade was executed at the best possible price. A variety of manipulative practices prevailed. Retail investors were using sub brokers e.g users of outside Mumbai.

The Market used Future style Settlement with

fortnightly settlement. A peculiar market practice called Badla allowed brokers to carry positions across settlement periods The efficiencies of the exchange clearing house only applied for the largest 100 Cos. Entire process of share transfer was time consuming.

Steps to strengthen the Securities Market


After 1992, some innovative instruments such as

conversion of auction Treasury Bills into term securities , Zero Coupon, Capital Index Bonds and Partly paid stocks were introduced. Auction of 182 day Treasury Bills was resumed from Apr 5, 2005. The Government of India set up the Securities Trading Corporation of India (STCI) to develop institutional structure. Commenced from June 1994. 14 day Intermediate treasury Bill was introduced effective April 1997 to enable state Govt., Foreign Central Banks and other specified bodies with

A system of primary Dealers was established in

March 1995 and the guidelines for satellite Dealers were issued in Dec. 1996. Automatic monetization of Central Govt. were introduced from Apr.1, 1997. The Negotiated Dealing System(NDS) was operationalised in 2002. Foreign Institutional Investors were allowed to set up 100 per cent debt funds to invest in Govt. dated Securities. Retail trading in Govt. securities at select stock exchanges commenced in Jan 2003.