Ch.

1 CAPITAL MARKET 10%

Meaning Importance of Indian C.M. Structure of Indian C.M. Recent Trends in Indian C.M

Mayur Patel(NIM BBA College)

Bombay Stock Exchange-BSE

Stock Exchange & Portfolio Management(SEPM) BY-Mayur Patel

Stock Exchange & Portfolio Management(SEPM) BY-Mayur Patel

Meaning of Capital Market

y A capital market is a market for securities (debt or

equity), where business enterprises (companies) and governments can raise long-term funds. y It is defined as a market in which money is provided for periods longer than a year, as the raising of short-term funds takes place on other markets (e.g., the money market). y Capital Market basically means a market in which financial securities are traded between individuals or institutions. y Capital markets may be classified as primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors. In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere.
4 Stock Exchange & Portfolio Management(SEPM) BY-Mayur Patel

SEBI

CAPITAL MARKET

MONEY MARKET

PRIMARY MARKET

SECONDARY MARKET

Stock Exchange & Portfolio Management(SEPM) BYMayur Patel

Indian Capital markets - Chronology

y 1994-Equity Trading commences on NSE y 1995-All Trading goes Electronic y 1996- Depository comes in to existence y 1999- FIIs Participation- Globalisation y 2000- over 80% trades in Demat form y 2001- Major Stocks move to Rolling Sett y 2003- T+2 settlements in all stocks y 2003 - Demutualisation of Exchanges

Stock Exchange & Portfolio Management(SEPM) BYMayur Patel

Importance/Significance/ Role of Indian Capital Market

y Mobilization of Savings & acceleration of

Capital Formation y Promotion of Industrial Growth y Raising of long term Capital y Ready & Continuous Markets y Proper Channelisation of Funds y Use of updated technology is possible

Stock Exchange & Portfolio Management(SEPM) BY-Mayur Patel

CLASSIFICATION OF FINANCIAL MARKETS

Classification of financial markets Organized Markets

Unorganized Markets Money lenders, Indigenous bankers, etc

Capital Market

Money Market

Industrial Securities markets

Govt. Securities Market

Long term Loan Market

Call Money Market, Commercial bills Treasury Bills Short term loan market

Primary Market

Secondary market

Term Loan market

Market for Financial Guarantees

Market for Mortgages

Stock Exchange & Portfolio Management(SEPM) BYMayur Patel

ORGANIZED MARKET
Standardized rules and regulations governing their financial dealings. A high degree of institutionalization and instrumentalisation. Subject to strict supervision and the control by the RBI or other regulatory bodies. Can be further divided into two: A) Capital market B) Money market

A) CAPITAL MKT:
Is a market for financial assets which have a long or indefinite maturity. Generally deals with long term securities. Divided into three: 1)Industrial securities market 2) Government securities market 3) Long term loans market
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CAPITAL MARKET
1) Industrial securities market:
y y

A market for industrial securities namely, equity shares, preference shares, debentures or bonds. further can be divided in Two: a) Primary market: - Public issues, Rights issues, Private placement b) Secondary market:

2) Govt securities market:

y y y y y y

Called Gilt edged securities market. Its a market where Govt securities are traded. - Short term(traded in money market) and long term(traded here). Securities issued by the Central Government, State Govt., Semi-govt authorities like City Corp., Port trusts, etc. Improvement Trusts, State Electricity Boards Issued in denominations of 100s Major participants: Commercial Banks for SLR requirement,

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y Secondary market very narrow Stock Exchange & Portfolio Management(SEPM) BYMayur Patel

CAPITAL MARKET
3) Long- term Loans Market
y MAJOR PARTICIPANTS

: Development Banks and commercial banks

y Can be further divided into three:

i)Term- loans market To supply long term and medium term loans to corporate customers Institutions like IDBI, ICICI, IFCI ii) Mortgages Market Is a loan against security of immovable property like real estate. Transfer of interest in a specific immovable property to secure a loan is called mortgage

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Stock Exchange & Portfolio Management(SEPM) BYMayur Patel

CAPITAL MARKET
y iii) Financial Guarantee Market: y Finance provided against guarantee of a reputed person in financial

circle y Guarantee: A contract to discharge the liability of third party in case of his default y Acts as a security from the creditors point of view. y Financial guarantee in India relates to
y Deferred payments for imports and exports y Medium and long term loans raised abroad y Loans advanced by banks and other FIs

y Guarantees

provided by commercial banks, development banks, Governments and other specialized institutions like ECGC(Export Credit Guarantee Corp.) and DICGC (Deposit Insurance and Credit Guarantee Corp.)

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Stock Exchange & Portfolio Management(SEPM) BYMayur Patel

Reforms in Indian Capital Market Since 1992

y Capital Issues (Control) Act of 1947 repealed and the office of

Controller of Capital Issues abolished; control over price and premium of shares removed. Companies now free to raise funds from securities markets after filing prospectus with the Securities and Exchange Board of India (SEBI). y The power to regulate stock exchanges delegated to SEBI by the Government. y SEBI introduces regulations for primary and other secondary market intermediaries, bringing them within the regulatory framework.

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Stock Exchange & Portfolio Management(SEPM) BY-Mayur Patel

Reforms in Indian Capital Market Since 1992

y SEBI introduces a code of advertisement for public issues to y y y y

ensure fair and truthful disclosures. Disclosure norms further strengthened by introducing cash flow statements. New issue procedures introducedbook building for institutional investorsaimed at reducing costs of issue. SEBI reconstitutes the governing boards of the stock exchanges and introduces capital adequacy norms for broker accounts. Private mutual funds permitted and several such funds already set up. All mutual funds allowed to apply for firm allotment in public issuesalso aimed at reducing issue costs.

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Stock Exchange & Portfolio Management(SEPM) BYMayur Patel

Reforms in Indian Capital Market Since 1992

y Over-the-Counter Exchange of India formed. y National Stock Exchange (NSE) establishment as a stock exchange with y

y y y y

nationwide electronic trading. Bombay Stock Exchange (BSE) introduces screen-based trading; 15 stock exchanges now have screened-based trading. BSE granted permission to expand its trading network to other centers. Capital adequacy requirement for brokers enforced. System of mark-to-market margins introducedin the stock exchanges. Stock lending scheme introduced. Transparency brought out in short selling.

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Stock Exchange & Portfolio Management(SEPM) BYMayur Patel

Reforms in Indian Capital Market Since 1992

y National Securities Clearing Corporation, Ltd. set up by NSE. y SEBI strengthens surveillance mechanisms and directs all stock

exchanges to have separate surveillance departments. y SEBI strengthens enforcement of its regulations. y The Depositories Act enacted to facilitate the electronic book entry transfer of securities through depositories. y Guidelines for Offshore Venture Capital Funds announced. SEBI regulations for venture capital funds become effective.

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Stock Exchange & Portfolio Management(SEPM) BYMayur Patel

Recent Trends in Indian Capital Market

y Introduction of Derivative products - Index / Stock Futures & y y y y

Options Margin Lending Securities Lending Institutionalization major role MF/FI/FII/VCF/ - pressure on the company to perform/disclosure. Globalization opening of market to overseas player - E.g. FDI/portfolio management for FII/NRI etc. Indian corporate also access overseas market.

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Stock Exchange & Portfolio Management(SEPM) BYMayur Patel

Recent Trends in Indian Capital Market

y Four products rolled out- Index / Stock - Futures & Options y Margining System - VAR based / Market wide limits y Client level computation of positions & margining y Emergence of institutions SEBI/NSE/NSDL/CDSL/CCIL etc. y Modernization

use of technology for trading/clearing/settlement etc. Role of IT for clearing, settlement, monitoring etc

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Stock Exchange & Portfolio Management(SEPM) BYMayur Patel

Recent Trends in Indian Capital Market

y 1994-EquityTrading commences on NSE y 1995-AllTrading goes Electronic y 1996- Depository comes in to existence y 1999- FIIs Participation- Globalisation y 2000- over 80% trades in Demat form y 2001- Major Stocks move to Rolling Sett y 2003- T+2 settlements in all stocks y 2003 - Demutualisation of Exchanges

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Stock Exchange & Portfolio Management(SEPM) BYMayur Patel