Synopsis

Authors: Arpit Kapoor (2nd Trimester, GHS-IMR, 1578); Rishita Pandey (2nd Trimester, GHS-IMR, 1595)

Capital Market in India

Abstract Capital Market

What is a Stock Exchange?

A stock exchange is a form of exchange, which provides services for stockbrokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it must be listed there. Usually, there is a central location at least for record keeping, but trade is increasingly less linked to such a physical place, as modern markets are electronic networks, which gives them advantages of increased speed and reduced cost of transactions. Trade on an exchange is by members only.

apital markets are financial markets for

the buying and selling of long-term debt- or equity-backed securities. These markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments. Modern capital markets are almost invariably hosted on computer-based electronic trading systems; most can be accessed only by entities within the financial sector or the treasury departments of governments and corporations, but some can be accessed directly by the public. There are many thousands of such systems, most only serving only small parts of the overall capital markets. Entities hosting the systems include stock exchanges, investment banks, and government departments. A key division within the capital markets is between the primary markets and secondary markets. Governments tend to issue only bonds, whereas companies often issue either equity or bonds. The main entities purchasing the bonds or stock include pension funds, hedge funds, sovereign wealth funds, and less commonly wealthy individuals and investment banks trading on their own behalf. In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere. The existence of secondary markets increases the willingness of investors in primary markets, as they know they are likely to be able to swiftly cash out their investments if the need arises. A second important division falls between the stock markets (for equity securities, also known as shares, where investors acquire ownership of companies) and the bond markets (where investors become creditors).

Figure 1 Bombay Stock Exchange

Features of Stock Exchange

Characteristics or features of stock exchange are:1. 2. 3. 4. 5. 6. 7. 8. 9. Market for securities Deals in second hand securities Regulates trade in securities Allows dealings only in listed securities Transactions effected only through members Association of persons Recognition from Central Government Working as per rules Specific Location Financial Barometers

Various stock Exchanges in India

There are 3 stock exchanges in India 1. 2. 3. BSE Bombay Stock Exchange NSE National Stock Exchange OTCEI Over the counter exchange of India

Role of Stock Exchanges in Capital Market of India

10.

Functions of Stock Exchanges

1. Continuous and ready market for security

2. Facilitates evaluation of securities 3. Encourages capital formation 4. Provides safety and security in dealings 5. Regulates company management 6. Facilitates public borrowing 7. Provides clearing house facility 8. Facilitates healthy speculation 9. Serves as Economic Barometer 10. Facilitates Bank Lending
Figure 3 Role of Capital Market in India

1. Effective Mobilization of savings 2. Promoting Capital formation 3. Wider Avenues of investment 4. Liquidity of investment 5. Investment priorities 6. Investment safety 7. Wide Marketability to Securities 8. Financial resources for public and private sectors 9. Funds for Development Purpose 10. Indicator of Industrial Development 11. Barometer of National Economy

Figure 2 Functions of Stock Exchanges

References
1. http://kalyancity.blogspot.com/2010/11/what-isstock-exchange-its-definitions.html http://kalyancity.blogspot.com/2010/11/function s-of-stock-exchange-main.html http://kalyancity.blogspot.com/2010/11/variousstock-exchanges-in-india-bse.html

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