You are on page 1of 29

Prepared by: Zeel Parmar Jaimin Sarvaiya

WHAT IS CAPITAL MARKET?


A market for medium to long-term financial instruments. Financial instruments traded in the capital market include shares, and bonds issued by the Central Government, State governments, corporate borrowers and financial institutions.

FUNCTIONS OF CAPITAL MARKET


y Long term savings y Provides Liquidity y Disseminate information efficiency y Quick valuation of financial instruments y Provide insurance against market risk y Provide operational efficiency y Develop integration y Direct flow of funds into efficient channels

HISTORY OF INDIAN CAPITAL MARKET


y Stock Market was for a privileged few y Lack of Transparency - High tones costs y No use of Technology y Outdated banking system y Volumes - less than Rs. 300 cr per day

HISTORY OF INDIAN CAPITAL MARKET


y 1875- Establishment of Native stock Brokers Association in Bombay y 1956- Securities Contract Regulation Act came in force y 1988- Set up of SEBI y 1994-Equity Trading commences on NSE y 1995-All Trading goes Electronic y 1996- Depository comes in to existence y 1999- FIIs Participation- Globalization y 2000- over 80% trades in Demat form y 2003- T+2 settlements in all stocks

CAPITAL MARKET SCAMS


92 Harshad Mehta Scam y 2001 Ketan Parekh Scam
y 1991

CAPITAL MARKET AT A GLANCE


y Second fastest growing economies after China with an average annual growth rate of more than 8 per cent in the last three years. y Indian companies may issue shares under Employee Stock Option Scheme to its employees who are resident outside. y Foreign Institutional Investors are allowed to invest in India under the Foreign Institutional Investment scheme. y NSE (India s National Stock Exchange) is the third largest in the world in the number of trades after NYSE and NASDAQ.

CAPITAL MARKET AT A GLANCE


y India has 23 small and 2 big stock exchanges. y The 2 big stock exchanges (National Stock Exchange and Bombay Stock Exchange) account for 90 per cent of trade. y Over 7000 listed companies on the stock exchanges largest in the world.

Indian Capital Market

Market

Instruments

Intermediaries

Players

Regulator

Primary Secondary

Brokers Investment Bankers Stock Exchanges Underwriters

CRA Corporate Intermediaries Individual Banks/FI FDI /FII

SEBI

Equity

Debt

TYPES OF MARKET
y PRIMARY MARKET y SECONDARY 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.

PRIMARY MARKET
Functions of Primary Market y ORIGINATION: is the work of investigation and analysis and processing of new issue proposals.
y

UNDERWRITING: is a form of guarantee that the new issue would be sold by eliminating the risk arising from uncertainty of public response DISTRIBUTION: is the sale of the ultimate investors.

PRIMARY MARKET
Intermediaries to an issue:
y Merchant Banker y Registrar to the issue y Bankers to the issue

PRIMARY MARKET
Methods for determining the offer Price:
y Fixed Price y Book Building
o Open Book o Closed Book

PRIMARY MARKET
Primary Issues

Public issue

Rights issue

Private Placement

Initial Public Offering

Follow on Public Offering

Private Placement

Preferential Issue

Qualified Institutions

PRIMARY MARKET
Resource Mobilization from International Capital Markets
y Global Depository Receipts (GDRs) y American Depository Receipts (ADRs) y External commercial Borrowings (ECBs)

SECONDARY MARKET
The secondary market is a market in which existing securities are sold or traded. This market is also known as stock market.

SECONDARY MARKET
Functions of Secondary Market: y To facilitate liquidity and marketability y Allocation of funds y Instant valuation of securities y Measure of safety and fair dealing

SECONDARY MARKET
Trading & Settlement: y Dematerialization of securities y Risk Management

Internet Trading

SECONDARY MARKET
Stock Market Index:
Functions of an Index: y To serve as a barometer of the equity market y To serve as a benchmark for portfolio of stocks y To serve as underlying for futures and options contracts

SECONDARY MARKET
Stock Market Index:
Methodologies for calculating an Index: 1. Market capitalization Weighted
a.

Full Market Capitalization Method = No. of shares outstanding * Market price of company s share Free float Market capitalization Method % of shares available for freely available for purchase in the market Modified Capitalization weighted

b.

c.

2. 3.

Price weighted Index Equal Weighting

SECONDARY MARKET
Stock Market Index:
Global Stock Market Indices: y The Dow Jones Industrial Wage y The Nasdaq Composite Index y The Nasdaq 100 Index y The S & P 500 Index y The FTSE 100 y The MSCI Indices

SECONDARY MARKET
Stock Market Index:
Major Indices in India: y Sensex y Nifty

SECONDARY MARKET
Bombay Stock Exchange:
Carry Forward Deals or Badla: Badla is the postponement of the delivery of or payment for the purchase of securities from one settlement period to another There are two types of Badla: 1. Vyaj badla / Mandi badla 2. Mal badla / Teji Badla

SECONDARY MARKET
Bombay Stock Exchange:
Listing Categories A Group 2. B1 Group 3. B2 Group 4. F Group
1.

SECONDARY MARKET
National Stock Exchange:
Objectives of NSE: y To establish nation wide trading facility for equity, debt instruments and hybrids y Electronic trading system y Fair, efficient and transparent security market y To meet current international standards of securities market

SECONDARY MARKET
National Stock Exchange:
National Securities Clearing Corporation Limited: Entities Linked with NSCCL 1. Custodian / Clearing Members 2. Clearing Banks 3. Depositories 4. Professional Clearing Members

SECONDARY MARKET
National Stock Exchange:
National Securities Clearing Corporation Limited: NSCCL Products and services 1. Clearing and settlement 2. Guarantee 3. Risk Management 4. Direct payment to clients 5. Constituent SGL A/c 6. Mutual Fund Service System