CAPITAL MARKET

Presented to: Presented by:

Himanshu Smridhi
Prof. Ravinder Bhatia Sainath Anushree
Sonal
Overview

Capital Market
Function of Capital Market
Types of Capital Market
Capital Market Risk
Capital Market Investment
Indian Capital Market
 Capital Markets

Long-term debt or equity-backed securities are bought and sold.

Markets in which money is provided for periods longer than a
year.
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.

Sonal
 Functions of Capital Markets

Mobilization of savings
Capital Formation
Provision of investment avenue
Speed up economic growth and development
Proper regulation of funds
Service provision
Continuous availability of funds
Sonal
 Financial Instruments
Monetary contracts between parties
Gives rise to a financial asset of one entity and a financial liability or
equity instrument of another entity

Types of Financial Instruments

Cash Instruments
Derivative Instruments
Asset class
Sonal
 Types of Capital Market

Primary Market

Secondary Market

Anushree
 Primary Market
It deals with issuing of new securities. Companies, governments and or public
sector institutions can obtain funds through the sale of a new stock or bond
issued through primary market.

Securities are sold for Purpose For setting up new

Features the first time business

For expanding
Sold directly to existing business or
investors modernizing plants
and machineries

New security certificate Accelerates process

to the investors of capital formation
Anushree
 Methods used in floating of securities in Primary
Market

1. IPO

2. FPO

3. Right Issue

4. Private Placement

5. Preferential Issue

Anushree
6. E-IPO
 Function Facilitate capital Market Merchant Bankers
growth Moderators

Underwriters
Global Investments

Debenture trustees
Sale of Government
Securities

Portfolio Managers
Raises goodwill,
product Popularity
Share transfer agents

Anushree
 Secondary capital market
The secondary market is that market in which the trading of the previously issued securities is done.

The transactions of the secondary market are generally done through the medium of stock exchange
along with some host of intermediaries that provide necessary platform

In order to do trading in the secondary market the company has to register in the regional stock
exchange.

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.

The chief purpose of the secondary market is to create liquidity in securities.

Sainath
 Financial instruments traded on the secondary
market

Debt instruments
Equities
Preference shares
Derivatives

Sainath
 Debt instruments
A debt instrument is used by either companies or government to generate funds for capital intensive
projects

Issued by name
Federal government Sovereign bonds
State government State bonds
Local government Municipal bonds
Corporate body debentures

Equities
Equity instruments can be obtained from either primary market or secondary market
Investment in this of business form translates to ownership of business as the contract stand
Risk factor is high and yield is also high

Sainath
 Derivatives
These instruments that derive from other securities which are
referred to underlying assets
Examples:
Mortgage backed securities
Asset backed securities
Futures
Options
Rights
Exchange trade funds or commodities

Sainath
 Capital Market Risk

Investment in the capital market exposes the investor to capital

market risk.
Investment in long term financial instruments is also accompanied
by high capital market risks.
There are two types of capital markets- the stock market and the
bond market.

Smridhi
 Capital Market Risk in the Stock Market

Stock prices keep fluctuating over a wide range unlike the bank
deposits or government bonds and has a considerable effect on not
only the individual investors or the household but the entire economy.
The efficient market hypothesis shows the effect of fundamental
factors in changing the price of the stock market.
Research has shown that there are certain psychological factors that
shape the stock market prices.

Smridhi
 It may make individuals victims of false patterns and group
thinking.
Sometimes the market behaves illogically to any economic news.
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.

Smridhi
 Capital Market Risk in the Bond Market

Capital market risk is faced by individuals who buy or sell the

bonds before it expires and not who own the bond, collect the
coupon and hold it till the expiry of the maturity date.
Arises due to interest rate changes.
There is an inverse relationship between interest rate and price of
bonds.
The bond prices are sensitive to the monetary policy of the country
as well as economic changes.

Smridhi
 Capital Market Investment

A capital market is a market where both the capital market

investment makes the investors to buy or sell securities in the
capital markets.
The capital market is basically the financial pool in which different
companies as well as the government can raise long term funds.
Capital market investment takes place through the bond market
and the stock market.

Smridhi
 Capital Market Investments in the Stock Market

The stock market is basically the trading ground capital market investment in the following:
company stocks
derivatives
other securities
The capital market investments in the stock market take place by
small individual stock investors
large hedge fund traders.
The capital market investments can occur either in
The physical market by a method known as the open outcry. The New York Stock
Exchange is a physical market or
trading can also occur in the virtual exchange where trading is done in the computer
network. NASDAQ is a virtual exchange.

Smridhi
 Investments in the stock market helps the large companies to raise their long
term capital .
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 of government
securities , bonds or real estate .
The stock exchanges basically function as the clearing house for such liquid
transactions.
The capital market investments in the stock market are also done through the
derivative instruments like the stock options and the stock futures.
The derivatives are the financial instruments whose value is determined by
the price of the underlying asset.

Smridhi
 Capital Market Investments in the Bond Market
The bond market is a financial market where the participants buy and sell debt 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 capital market investment in the bond market is done by

institutional investors
governments, traders and
individuals

Smridhi
 Bond investment is different from that of stock investment.
Bond investment is investing in the debt instrument that is issued by a
company or government.
The bond investor is actually lending money to the company while in return
is promised to be paid the full principal amount plus a fixed periodic payout.
The yield on the bond is calculated by putting together the final principal and
total payouts received.
The yield is the effective interest rate for the tenure of the bond.

Smridhi
 Indian Capital Market
The Indian Capital Market is 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 the American Civil War and ' Share Mania ' in India.
Formation of the Hamada Shares and Stock Brokers Association.
1908: Formation of the Calcutta Stock Exchange Association.

Himanshu
 If an individual has some financial security and he wills to sell it, he can approach the Stock
Exchange Companies which will help him to sell or purchase his security by the means of a
Broker.
There are 23 stock exchanges in India.
In India we have Bombay stock exchange , National stock exchange and the rest 21 are
Regional stock exchanges.

STOCK EXCHANGE PLATFORM

There are three types of exchange platforms in India:
1. Domestic Exchanges: Indian equities are traded on three major national exchanges: 1.MCX
Stock Exchange Limited (MCX- SX), 2. Bombay Stock Exchange Limited (BSE) and 3.
National Stock Exchange of India Limited (NSE);

Himanshu
 2. Regulatory Based:
Regulatory authority is the one which is under the government surveillance.
A few Stock Exchange companies follow the rules which are laid down by the government
of India.
Example: SEBI:- (Securities Exchange Board of India) & RBI:- (Reserve Bank of India);
2. International Exchanges:
Due to increasing globalization, There is a rising competition amongst various countries to
keep their market stable.
Therefore, it is important to keep track of international financial markets for better
perspective and intelligent investment.
Example: NASDAQ(National Association of Securities Dealers Automated Quotations),
London Stock Exchange(LSE)-FTSE, Frankfurt Stock Exchange(FSE)-DAX,

Himanshu
Thank you