S.

K SOMAIYA COLLEGE OF ARTS, SCIENCE & COMMERCE

VIDYAVIHAR (EAST), MUMBAI - 400077

PROJECT ON:
STUDY

OF CAPITAL MARKETS.

MASTERS OF COMMERCE
(BANKING & FINANCE)

PART 2 (SEM III)

(2016-2017)

Submitted:
In Partial Fulfillment of the requirements
For the Award of the Degree of
MASTERS OF COMMERCE
( BANKING & FINANCE )
BY
KUNJAL M SHAH
ROLL NO : 48
1

DECLARATION

I KUNJAL M SHAH student of class Mcom (BANKING & FINANCE) PART

2 (SEM-III), ROLL NO. 48, academic year 2016-2017 Studying at S.K.
SOMAIYA COLLEGE OF ARTS, SCIENCE AND COMMERCE, hereby
declare that the work done on the project Entitled STUDY OF CAPITAL
MARKET . is true and original and any Reference used in this project is duly
acknowledged.

DATE:

PLACE: MUMBAI
SIGNATURE OF STUDENT
( KUNJAL M SHAH )

CERTIFICATE
This is to certify that MISS KUNJAL SHAH, studying in Mcom (BANKING &
FINANCE) PART 2 (SEM-III), ROLL NO. 48, academic year 2016-2017 at
S.K.SOMAIYA COLLEGE OF ARTS, SCIENCE & COMMERCE has
completed the project on STUDY OF CAPITAL MARKETS under the
guidance of Proff. SHAMA SHAH
The information submitted herein is true and original to the best of my
knowledge.

____________________

___________________

Proff. SHAMA SHAH

DR. SANGEETA KOHLI

[PROJECT GUIDE]

[PRINCIPAL]

____________________

___________________

EXTERNAL EXAMINER

MR. RAVIKANT
[CO-ORDINATOR]

DECLARATION BY GUIDE
I, the undersigned Prof. has guided MISS KUNJAL SHAH ROLL NO. 48 for
her

project.

She

has

completed

the

project

on

STUDY

OF

SECURITIZATION. successfully.
I, hereby declare that information provided in this project is true as per the
best of my knowledge.

Prof.
Project Guide

ACKNOWLEDGEMENT

It gives me immense pleasure to present a project on STUDY OF CAPITAL

MARKETS . As a Mcom student it is a great honour to undergo a project work
at an graduate level and I would like to thank the University of Mumbai for giving
me such a golden opportunity.
I am eternally grateful to almighty god for giving me the spirit to put in my best
effort towards my project. I owe my sincere gratitude to DR. SANGEETA
KOHLI, the principal of our college. I am also thankful to my project guide
PROFF. SHAMA SHAH for his valuable guidance and for providing an insight
to the subject.
I am also obliged to the library staff of S.K..Somaiya College for the numerous
books made me available for the handy reference.
Although, I have taken every care to check mistake and misprint yet it is difficult
to claim perfection. Any error, omission and suggestion brought to my notice, will
be thankfully acknowledged by me.

INDEX

PAGE
NO

SR NO CHAPTER NAME
1 INTRODUCTION TO CAPITAL MARKET

2 FUNCTIONS & PARTICIPANTS OF CAPITAL MARKET

12

3 STRUCTURE OF INDIAN CAPITAL MARKET

15

4 CAPITAL MARKET INSTRUMENTS

22

5 REGULATORY FRAMEWORK OF CAPITAL MARKET

27

6 GROWTH & DEVELOPMENT OF CAPITAL MAKET

32

CONCLUSION

35

BIBLOGRAPHY

36

CHAPTER 1
INTRODUCTION TO CAPITAL MARKET

The capital market (securities markets) is the market for securities, where companies and
the government can raise long-term funds. The capital market includes the stock market and the
bond market. Financial regulators, oversee the capital markets in their respective countries to
ensure that investors are protected against fraud. The capital markets consist of the primary
market, where new issues are distributed to investors, and the secondary market, where existing
securities are traded.Capital market deals with medium term and long term funds. It refers to all
facilities and the institutional arrangements for borrowing and lending term funds (medium term
and long term). The demand for long term funds comes from private business corporations,
public corporations and the government. The supply of funds comes largely from individual and
institutional investors, banks and special industrial financial institutions and Government.Capital
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. Financial
regulators, such as the UK's Bank of England (BoE) or the U.S. Securities and Exchange
Commission (SEC), oversee the capital markets in their jurisdictions to protect investors against
fraud, among other duties.

MEANING AND DEFINITION:

Capital market can be defined as:

A market for medium to long-term financial instruments. Financial instruments are traded in the
capital market include shares, and bonds issued by the Australian Government, State
governments, corporate borrowers and financial institutions.
Capital market is a market where buyers and sellers engage in trade of financial securities like
bonds, stocks, etc. The buying/selling is undertaken by participants such as individuals and
institutions.
Capital markets channel savings and investment between suppliers of capital such as retail
investors and institutional investors, and users of capital like businesses, government and
individuals. Capital markets are vital to the functioning of an economy, since capital is a critical
component for generating economic output. Capital markets include primary markets, where new
stock and bond issues are sold to investors, and secondary markets, which trade existing
securities a market for medium to long-term financial instruments. Capital 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.

HISTORY OF INDIAN CAPITAL MARKET:

Since 2003, Indian capital markets have been receiving global attention, especially from sound
investors due to the improving macroeconomic fundamentals. The presence of a great pool of
8

skilled labor and the rapid integration with the world economy increased Indias global
competitiveness. No wonder, the global ratings agencies Moodys and Fitch have awarded India
with investment grade ratings, indicating comparatively lower sovereign risks.
The Securities and Exchange Board of India (SEBI), the regulatory authority for Indian securities
market, was established in 1992 to protect investors and improve the microstructure of capital
markets. In the same year, Controller of Capital Issues (CCI) was abolished, removing its
administrative controls over the pricing of new equity issues. In less than a decade later, the
Indian financial markets acknowledged the use of technology (National Stock Exchange started
online trading in 2000), increasing the trading volumes by many folds and leading to the
emergence of new financial instruments. With this, market activity experienced a sharp surge and
rapid progress was made in further strengthening and streamlining risk management, market
regulation, and supervision.
The securities market is divided into two interdependent segments:

The primary market provides the channel for creation of funds through issuance of new
securities by companies, governments, or public institutions. In the case of new stock
issue, the sale is known as Initial Public Offering (IPO).

The secondary market is the financial market where previously issued securities and
financial instruments such as stocks, bonds, options, and futures are traded.

FEATURES:

An efficient capital market is perfect if the above mentioned conditions are fully satisfied. A
capital market which is otherwise reasonably efficient will have imperfections to the extent it
does not satisfy the conditions of the perfect capital market. There are three significant
imperfections that may be found in most capital markets in different degrees. A perfect capital
market imposes more stringent conditions. The following are the attributes of a perfect capital
market:

TAX ASYMMETRIES: Most economies have varieties of taxes and tax incentives
which cause tax asymmetries. These make security transactions more beneficial to some
ones. A number of financial transactions may create additional wealth because of tax

differences.
INFORMATION ASYMMETRIES: Most financial information is published and
therefore, is publicly available. But sometimes, certain persons may have superior

information than others. These persons may earn abnormal return for sometimes.
TRANSACTION COSTS: These costs do not affect the prices. But, they can cause one
transaction to be more profitable than the other. Transaction costs of two similar financial
transactions may be different. Similarly transaction costs of two persons to a particular
transaction may be different. In practice, capital markets have imperfections. For
developing frameworks for analyzing financial decisions, a good starting point is to
assume that capital markets are perfect. Once a framework developed, the practical
implications of market imperfections can be analyzed.

NO ENTRY BARRIERS: Any one can participate in the market. Thus the suppliers or

users of funds can enter the market and deal with each other.
LARGE NUMBER OF BUYERS AND SELLERS: Perfect competition in the market
is ensured by the presence of large number of buyers and sellers of securities.
10

DIVISIBILITY OF FINANCIAL ASSETS: Financial assets are divisible and therefore,

affordable investments are made by all participants.

ABSENCE OF TRANSACTION COST: There are no transaction costs. Participants

can buy and sell securities with ease and without many costs.
NO TAX DIFFERENCES: ideally, there are any taxes. There should not be any tax

distortions. One set of investors should not be favored over others.

FREE TRADING: Any one is free to trade in security.

CHAPTER 2
ROLE AND FUNCTIONS OF CAPITAL MARKET:

11

Like the money market capital market is also very important. It plays a significant role in the
national economy. A developed, dynamic and vibrant capital market can immensely contribute
for speedy economic growth and development.
Let us get acquainted with the important functions and role of the capital market.

MOBILIZATION OF SAVINGS: Capital market is an important source for mobilizing

idle savings from the economy. It mobilizes funds from people for further investments in
the productive channels of an economy. In that sense it activates the ideal monetary

resources and puts them in proper investments.

CAPITAL FORMATION: Capital market helps in capital formation. Capital formation
is net addition to the existing stock of capital in the economy. Through mobilization of
ideal resources it generates savings; the mobilized savings are made available to various

segments such as agriculture, industry, etc. This helps in increasing capital formation.
PROVISION OF INVESTMENT AVENUE: Capital market raises resources for longer
periods of time. Thus it provides an investment avenue for people who wish to invest
resources for a long period of time. It provides suitable interest rate returns also to
investors. Instruments such as bonds, equities, units of mutual funds, insurance policies,

etc. definitely provides diverse investment avenue for the public.

SPEED UP ECONOMIC GROWTH AND DEVELOPMENT: Capital market
enhances production and productivity in the national economy. As it makes funds
available for long period of time, the financial requirements of business houses are met
by the capital market. It helps in research and development. This helps in, increasing
production and productivity in economy by generation of employment and development
of infrastructure.

12

PROPER REGULATION OF FUNDS: Capital markets not only helps in fund

mobilization, but it also helps in proper allocation of these resources. It can have

regulation over the resources so that it can direct funds in a qualitative manner.
CONTINUOUS AVAILABILITY OF FUNDS: Capital market is place where the
investment avenue is continuously available for long term investment. This is a liquid
market as it makes fund available on continues basis. Both buyers and seller can easily
buy and sell securities as they are continuously available. Basically capital market
transactions are related to the stock exchanges. Thus marketability in the capital market
becomes easy.

PARTICIPANTS IN THE INDIAN CAPITAL MARKETS

FUND RAISERS are companies that raise funds from domestic and foreign sources,
both public and private. The following sources help companies raise funds:

FUND PROVIDERS are the entities that invest in the capital markets. These can be
categorized as domestic and foreign investors, institutional and retail investors. The
list includes subscribers to primary market issues, investors who buy in the secondary
market, traders, speculators, FIIs/ sub accounts, mutual funds, venture capital funds,
NRIs, ADR/GDR investors, etc.

INTERMEDIARIES are service providers in the market, including stock brokers,

sub-brokers, financiers, merchant bankers, underwriters, depository participants,
13

registrar and transfer agents, FIIs/ sub accounts, mutual Funds, venture capital funds,
portfolio managers, custodians, etc

ORGANIZATIONS include various entities such as MCX-SX, BSE, NSE, other

regional stock exchanges, and the two depositories National Securities Depository
Limited (NSDL) and Central Securities Depository Limited (CSDL).

MARKET REGULATORS include the Securities and Exchange Board of India

(SEBI), the Reserve Bank of India (RBI), and the Department of Company Affairs
(DCA).

14

CHAPTER 3
STRUCTURE OF INDIAN CAPITAL MARKET.
Broadly speaking the capital market is classified in to two categories. They are the
Primary market (New Issues Market) and the Secondary market (Old (Existing) Issues
Market). This classification is done on the basis of the nature of the instrument brought in
the market. However on the basis of the types of institutions involved in capital market, it
can be classified into various categories such as the Government Securities market or
Gilt-edged market, Industrial Securities market, Development Financial Institutions
(DFIs) and Financial intermediaries. All of these components have specific features to
mention. The structure of the Indian capital market has its distinct features. These
different segments of the capital market help to develop the institution of capital market
in many dimensions. The primary market helps to raise fresh capital in the market. In the
secondary market, the buying and selling (trading) of capital market instruments takes
place. The following chart will help us in understanding the organizational structure of
the Indian Capital market.

15

I.THE FIRST WAY IN WHICH CAPITAL MARKET IN INDIA IS CLASSIFIED

1. Government Securities Market :

This is also known as the Gilt-edged market. This refers to the market for government and
semi-government securities backed by the Reserve Bank of India (RBI).Gilt - Edged market
refers to the market for government and semi-government securities, which carry fixed rates
of interest. RBI plays an important role in this market.
2. Industrial Securities Market :
This is a market for industrial securities i.e. market for shares and debentures of the existing
and new corporate firms. Buying and selling of such instruments take place in this market.
This market is further classified into two types such as the New Issues Market (Primary) and
the Old (Existing) Issues Market (secondary). In primary market fresh capital is raised by
companies by issuing new shares, bonds, units of mutual funds and debentures. However in
the secondary market already existing i.e old shares and debentures are traded. This trading
takes place through the registered stock exchanges. In India we have three prominent stock
exchanges. They are the Bombay Stock Exchange (BSE), the National Stock Exchange
16

(NSE) and Over The Counter Exchange of India (OTCEI).It deals with equities and
debentures in which shares and debentures of existing companies are traded and shares and
debentures of new companies are bought and sold.
3. Development Financial Institutions (DFIs) :
This is yet another important segment of Indian capital market. This comprises various financial
institutions. These can be special purpose institutions like IFCI, ICICI, SFCs, IDBI, IIBI, UTI,
etc. These financial institutions provide long term finance for those purposes for which they are
set up.Development financial institutions were set up to meet the medium and long-term
requirements of industry, trade and agriculture. These are IFCI, ICICI, IDBI, SIDBI, IRBI, UTI,
LIC, GIC etc. All These institutions have been called Public Sector Financial Institutions.
4. Financial Intermediaries :
The fourth important segment of the Indian capital market is the financial intermediaries. This
comprises various merchant banking institutions, mutual funds, leasing finance companies,
venture capital companies and other financial institutions.Financial Intermediaries include
merchant banks, Mutual Fund, Leasing companies etc. they help in mobilizing savings and
supplying funds to capital market.Financial Intermediaries include merchant banks, Mutual
Fund, Leasing companies etc. they help in mobilizing savings and supplying funds to capital
market.

17

II.THE SECOND WAY IN WHICH CAPITAL MARKET IS CLASSIFIED IS AS

FOLLOWS :-

CAPITAL MARKET

PRIMARY MARKET

SECONDARY MARKET

THERE ARE TWO TYPES OF CAPITAL MARKET

1. PRIMARY MARKET:
The primary market is that part of the capital markets that deals with the issuance of new
securities. Companies, governments or public sector institutions can obtain funding through the
sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers.
The process of selling new issues to investors is called underwriting. In the case of a new stock
issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the
price of the security offering, though it can be found in the prospectus.
FEATURES:
This is the market for new long term equity capital. The primary market is the market
where the securities are sold for the first time. Therefore it is also called the new issue

market (NIM).
In a primary issue, the securities are issued by the company directly to investors.
The company receives the money and issues new security certificates to the investors.
18

Primary issues are used by companies for the purpose of setting up new business or for

expanding or modernizing the existing business.

The primary market performs the crucial function of facilitating capital formation in the

economy.
The new issue market does not include certain other sources of new long term external
finance, such as loans from financial institutions. Borrowers in the new issue market may
be raising capital for converting private capital into public capital; this is known as
going public. The financial assets sold can only be redeemed by the original holder.

METHODS OF ISSUING SECURITIES IN THE PRIMARY MARKET ARE:

A. INITIAL PUBLIC OFFERING;
B. RIGHTS ISSUE (FOR EXISTING COMPANIES
A. PUBLIC OFFERING
An initial public stock offering (IPO) referred to simply as an offering or flotation, is when a
company issues common stock or shares to the public for the first time. They are often issued by
smaller, younger companies seeking capital to expand, but can also be done by large privatelyowned companies looking to become publicly traded. An IPO can be a risky investment. For the
individual investor, it is tough to predict what the stock or shares will do on its initial day of
trading and in the near future since there is often little historical data with which to analyze the
company. Also, most IPOs are of companies going through a transitory growth period, and they
are therefore subject to additional uncertainty regarding their future value.
B. RIGHTS ISSUE
Under a secondary market offering or seasoned equity offering of shares to raise money, a
company can opt for a rights issue to raise capital. The rights issue is a special form of shelf
offering or shelf registration. With the issued rights, existing shareholders have the privilege to

19

buy a specified number of new shares from the firm at a specified price within a specified time.
A rights issue is in contrast to an initial public offering (primary market offering), where shares
are issued to the general public through market exchanges.

2. SECONDARY MARKET:
The secondary market, also known as the aftermarket, is the financial market where previously
issued securities and financial instruments such as stock, bonds, options, and futures are bought
and sold. The term secondary market is also used to refer to the market for any used goods or
assets, or an alternative use for an existing product or asset where the customer base is the
second market (for example, corn has been traditionally used primarily for food production and
feedstock, but a second- or third- market has developed for use in ethanol production). Another
commonly referred to usage of secondary market term is to refer to loans which are sold by a
mortgage bank to investors such as Fannie Mae and Freddie Mac. With primary issuances of
securities or financial instruments, or the primary market, investors purchase these securities
directly from issuers such as corporations issuing shares in an IPO or private placement, or
directly from the federal government in the case of treasuries. After the initial issuance, investors
can purchase from other investors in the secondary market.
The secondary market for a variety of assets can vary from loans to stocks, from fragmented to
centralized, and from illiquid to very liquid. The major stock exchanges are the most visible
example of liquid secondary markets in this case, for stocks of publicly traded companies.
Exchanges such as the New York Stock Exchange, Nasdaq and the American Stock Exchange
provide a centralized, liquid secondary market for the investors who own stocks that trade on
20

those exchanges. Most bonds and structured products trade over the counter, or by phoning the
bond desk of ones broker-dealer. Loans sometimes trade online using a Loan Exchange.

CHAPTER 4
CAPITAL MARKET INSTRUMENTS
The capital market, as it is known, is that segment of the financial market that deals with the
effective channeling of medium to long-term funds from the surplus to the deficit unit. The

21

process of transfer of funds is done through instruments, which are documents (or certificates),
showing evidence of investments.
The instruments traded (media of exchange) in the capital market are:

1. SECURED PREMIUM NOTES

SPN is a secured debenture redeemable at premium issued along with a detachable
warrant, redeemable after a notice period, say four to seven years. The warrants attached
to SPN gives the holder the right to apply and get allotted equity shares; provided the
SPN is fully paid. There is a lock-in period for SPN during which no interest will be paid
for an invested amount. The SPN holder has an option to sell back the SPN to the
company at par value after the lock in period. If the holder exercises this option, no
interest/ premium will be paid on redemption. In case the SPN holder holds it further, the
holder will be repaid the principal amount along with the additional amount of interest/
premium on redemption in installments as decided by the company. The conversion of
detachable warrants into equity shares will have to be done within the time limit notified
by the company.
Ex-TISCO issued warrants for the first time in India in the year 1992 to raise 1212 crore.
2. DEEP DISCOUNT BONDS
A bond that sells at a significant discount from par value and has no coupon rate or lower
coupon rate than the prevailing rates of fixed-income securities with a similar risk profile.

22

They are designed to meet the long term funds requirements of the issuer and investors
who are not looking for immediate return and can be sold with a long maturity of 25-30
years at a deep discount on the face value of debentures.
3. EQUITY SHARES WITH DETACHABLE WARRANTS
A warrant is a security issued by company entitling the holder to buy a given number of
shares of stock at a stipulated price during a specified period. These warrants are
separately registered with the stock exchanges and traded separately. Warrants are
frequently attached to bonds or preferred stock as a sweetener, allowing the issuer to pay
lower interest rates or dividends.
4. FULLY CONVERTIBLE DEBENTURES WITH INTEREST
This is a debt instrument that is fully converted over a specified period into equity shares.
The conversion can be in one or several phases. When the instrument is a pure debt
instrument, interest is paid to the investor. After conversion, interest payments cease on
the portion that is converted. If project finance is raised through an FCD issue, the
investor can earn interest even when the project is under implementation. Once the
project is operational, the investor can participate in the profits through share price
appreciation and dividend payments.
6. SWEAT EQUITY SHARES
The phrase `sweat equity' refers to equity shares given to the company's employees on
favorable terms, in recognition of their work. Sweat equity usually takes the form of
23

giving options to employees to buy shares of the company, so they become part owners
and participate in the profits, apart from earning salary. This gives a boost to the
sentiments of employees and motivates them to work harder towards the goals of the
company.
7. TRACKING STOCKS
A tracking stock is a security issued by a parent company to track the results of one of its
subsidiaries or lines of business; without having claim on the assets of the division or the
parent company. It is also known as "designer stock". When a parent company issues a
tracking stock, all revenues and expenses of the applicable division are separated from
the parent company's financial statements and bound to the tracking stock. Oftentimes,
this is done to separate a subsidiary's high-growth division from a larger parent company
that is presenting losses. The parent company and its shareholders, however, still control
the operations of the subsidiary.
9. DEBT INSTRUMENTS
A debt instrument is used by either companies or governments to generate funds for
capital-intensive projects. It can obtained either through the primary or secondary market.
The relationship in this form of instrument ownership is that of a borrower creditor and
thus, does not necessarily imply ownership in the business of the borrower. The contract
is for a specific duration and interest is paid at specified periods as stated in the trust
deed* (contract agreement). The principal sum invested, is therefore repaid at the
expiration of the contract period with interest either paid quarterly, semi-annually or
24

annually. The interest stated in the trust deed may be either fixed or flexible. The tenure
of this category ranges from 3 to 25 years. Investment in this instrument is, most times,
risk-free and therefore yields lower returns when compared to other instruments traded in
the capital market. Investors in this category get top priority in the event of liquidation of
a company. When the instrument is issued by:
The Federal Government, it is called a Sovereign Bond;
A state government it is called a State Bond;
A local government, it is called a Municipal Bond; and
A corporate body (Company), it is called a Debenture, Industrial Loan or Corporate
Bond
10. Equities (also called Common Stock)
This instrument is issued by companies only and can also be obtained either in the
primary market or the secondary market. Investment in this form of business translates to
ownership of the business as the contract stands in perpetuity unless sold to another
investor in the secondary market. The investor therefore possesses certain rights and
privileges (such as to vote and hold position) in the company. Whereas the investor in
debts may be entitled to interest which must be paid, the equity holder receives dividends
which may or may not be declared.

25

The risk factor in this instrument is high and thus yields a higher return (when
successful). Holders of this instrument however rank bottom on the scale of preference in
the event of liquidation of a company as they are considered owners of the company.
11. Preference Shares
This instrument is issued by corporate bodies and the investors rank second (after bond
holders) on the scale of preference when a company goes under. The instrument
possesses the characteristics of equity in the sense that when the authorised share capital
and paid up capital are being calculated, they are added to equity capital to arrive at the
total. Preference shares can also be treated as a debt instrument as they do not confer
voting rights on its holders and have a dividend payment that is structured like interest
(coupon) paid for bonds issues.
12. Derivatives
These are instruments that derive from other securities, which are referred to as
underlying assets (as the derivative is derived from them). The price, riskiness and
function of the derivative depend on the underlying assets since whatever affects the
underlying asset must affect the derivative. The derivative might be an asset, index or
even situation. Derivatives are mostly common in developed economies.

CHAPTER 5
REGULATORY FRAMEWORK
26

 THERE ARE FOUR MAIN LEGISLATIONS GOVERNING THE SECURITIES

MARKET:

THE SEBI ACT, 1992: establishes SEBI to protect investors and develop and regulate

the securities market.

THE COMPANIES ACT, 1956: sets out the code of conduct for the corporate sector in
relation to issue, allotment, and transfer of securities, and disclosures to be made in

public issues.
THE SECURITIES CONTRACTS (REGULATION) ACT, 1956: provides for

regulation of transactions in securities through control over stock exchanges.

THE DEPOSITORIES ACT, 1996: provides for electronic maintenance and transfer of

ownership of demat securities.

SEBI
SEBI protects the interests of investors in securities and promotes the development of the
securities market. The board helps in regulating the business of stock exchanges and any other
securities market. SEBI is also responsible for registering and regulating the working of stock
brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars
to an issue, merchant bankers, underwriters, portfolio managers, investment advisers, and such
other intermediaries who may be associated with securities markets in any manner.
The board registers the venture capitalists and collective investments like mutual funds. SEBI
helps in promoting and regulating self regulatory organizations.
RBI:

27

RBI is also known as the bankers bank. The central bank has some very important objectives
and functions such as:
OBJECTIVES

Maintain price stability and ensure adequate flow of credit to productive sectors.
Maintain public confidence in the system, protect depositors' interest, and provide cost-

effective banking services to the public.

Facilitate external trade and payment and promote orderly development and maintenance
of the foreign exchange market in India.

FUNCTIONS

Formulate implements and monitor the monetary policy.

Manage the Foreign Exchange Management Act, 1999.
Issue new currency and coins and exchange/destroy currency and coins not fit for

circulation.
Perform a wide range of promotional functions to support national objectives.

REFORMS INTRODUCED IN INDIAN CAPITAL MARKET

The government has taken several measures to develop capital market in postreform period, with which the capital market reached new heights. Some of the important
measures are
28

1.Securities And Exchange Board Of India (SEBI) :-SEBI became operational since
1992. It was set with necessary powers to regulate the activities connected with
marketing of securities and investments in the stock exchanges, merchant banking,
portfolio management, stock brokers and others in India. The objective of SEBI is to
protect the interest of investors in primary and secondary stock markets in the country.
2. National Stock Exchange (NSE) :-The setting up to NSE is a landmark in Indian
capital markets. At present, NSE is the largest stock market in the country. Trading on
NSE can be done throughout the country through the network of satellite terminals. NSE
has introduced inter-regional clearing facilities.
3. Dematerialization Of Shares :-Demat of shares has been introduced in all the shares
traded on the secondary stock markets as well as those issued to the public in the primary
markets. Even bondsand debentures are allowed in demat form. The advantage of demat
trade is that it involves Paperless trading.
4.Screen Based Trading :-The Indian stock exchanges were modernised in 90s, with
Computerised Screen Based Trading System (SBTS), It cuts down time, cost, risk of error
and fraud and there by leads to improved operational efficiency. The trading system also
provides complete online market information through various inquiry facilities.
5.Investor Protection :-The Central Government notified the establishment of Investor
Education and Protection Fund (IEPF) with effect from 1st Oct. 2001: The IEPF shall be
credited with amounts in unpaid dividend accounts of companies, application moneys
received by companies for allotment of any securities and due for refund, matured
29

deposits and debentures with companies and interest accrued there on, if they have
remained unclaimed and unpaid for a period of seven years from the due date of payment.
The IEPF will be utilised for promotion of awareness amongst investors and protection of
their interests.
6. Rolling Settlement :-Rolling settlement is an important measure to enhance the
efficiency and integrity of the securities market. Under rolling settlement all trades
executed on a trading day (T) are settled after certain days (N). This is called T + N
rolling settlement. Since April 1, 2002 trades are settled' under T + 3 rolling settlement. In
April 2003, the trading cycle has been reduced to T + 2 days. The shortening of trading
cycle has reduced undue speculation on stock markets.

7. The Clearing Corporation Of India Limited (CCIL) :-The CCIL was registered in
2001, under the Companies Act, 1956 with the State Bank of India as the Chief Promoter.
The CCIL clears all transactions in government securities and repos and also Rupee / US
$ forex spot and forward deals All trades in government securities below Rs. 20 crores
would be mandatorily settled through CCIL, white those above Rs. 20 crores would have
the option for settlement through the RBI or CCIL.
8. The National Securities Clearing Corporation Limited (NSCL) :-The NSCL was
set up in 1996. It has started guaranteeing all trades in NSE since July 1996. The NSCL is
responsible for post-trade activities of NSE. It has put in place a comprehensive risk
management system, which is constantly monitored and upgraded to pre-expect market
failures.
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9. Trading In Central Government Securities :-In order to encourage wider

participation of all classes of investors, Including retail investors, across the country,
trading in government securities has been introduced from January 2003. Trading in
government securities can be carried out through a nation wide, anonymous, order-driver,
screen-based trading system of stock exchanges in the same way in which trading takes
place in equities.
10. Credit Rating Agencies :-Various credit rating agencies such as Credit Rating
Information services of India Ltd. (CRISIL 1988), Investment Information and credit
Rating Agency of India Ltd. (ICRA 1991), etc. were set up to meet the emerging needs
of capital market. They also help merchant bankers, brokers, regulatory authorities, etc. in
discharging their functions related to debt issues.

CHAPTER 6
GROWTH AND DEVELOPMENT OF CAPITAL MARKET IN INDIA
The factors contributing/responsible to the growth and development of capital market in India
are as follows:
1.Growth Of Development Banks And Financial Institutions :-For providing long term funds
to industry, the government set up Industrial Finance Corporation in India (IFCI) in 1948. This
was followed by a number of other development banks and institutions like the Industrial Credit
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and Investment Corporation of India (ICICI) in 1955, Industrial Development Bank of India
(IDBI) in 1964, Industrial Reconstruction Corporation of India (IRCI) in 1971, Foreign
Investment Promotion Board in 1991, Over the Counter Exchange of India (OTCEI) in 1992 etc.
In 1969, 14 major commercial banks were nationalised. Another 6 banks were nationalised in
1980. These financial institutions and banks have contributed in widening and strengthening of
capital market in India.
2. Setting Up Of SEBI :-The Securities Exchange Board of India (SEBI) was set up in 1988 and
was given statutory recognition in 1992.
3. Credit Rating Agencies :-Credit rating agencies provide guidance to investors / creditors for
determining the credit risk. The Credit Rating Information Services of India Limited (CRISIL)
was set up in 1988 and Investment Information and Credit Rating Agency of India Ltd. (ICRA)
was set up in 1991. These agencies are likely to help the development of capital market in future.
4.Growth Of Mutual Funds :-The mutual funds collects funds from public and other investors
and channelise them into corporate investment in the primary and secondary markets. The first
mutual fund to be set up in India was Unit Trust of India in 1964. In 2007-08 resources mobilised
by mutual funds were Rs. 1,53,802 crores.
5. Increasing Awareness :-During the last few years there have been increasing awareness of
investment opportunities among the public. Business newspapers and financial journals
(The Economic Times, The Financial Express, Business India, Money etc.) have made the
people aware of new long-term investment opportunities in the security market.
6.Growing Public Confidence :-A large number of big corporations have shown impressive
growth. This has helped in building up the confidence of the public. The small investors who
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were not interested to buy securities from the market are now showing preference in favour of
shares and debentures. As a result, public issues of most of the good companies are now oversubscribed many times.
7.Legislative Measures :-The government passed the companies Act in 1956. The Act gave
powers to government to control and direct the development of the corporate enterprises in the
country. The capital Issues (control) Act was passed in 1947 to regulate investment in different
enterprises, prevent diversion of funds to non-essential activities and to protect the interest of
investors. The Act was replaced in 1992.
8. Growth Of Underwriting Business :-The growing underwriting business has contributed
significantly to the development of capital market.
9. Development Of Venture Capital Funds :-Venture capital represents financial investment in
highly risky projects with a hope of earning high returns After 1991, economic liberalisation has
made possible to provide medium and long term funds to those firms, which find it difficult to
raise funds from primary markets and by way of loans from FIs and banks.
10. Growth Of Multinationals (MNCs) :-The MNCs require medium and long term funds for
setting up new projects or for expansion and modernisation. For this purpose, MNCs raise funds
through loans from banks and FIs. Due to the presence of MNCs, the capital market get a boost.
11. Growth Of Entrepreneurs :-Since 1980s, there has been a remarkable growth in the number
of entrepreneurs. This created more demand for short term and long term funds. FIs, banks and
stock markets enable the entrepreneurs to raise the required funds. This has led to the growth of
capital market in India.

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12. Growth Of Merchant Banking :-The credit for initiating merchant banking services in
India goes to Grindlays Bank in 1967,followed by Citibank in 1970. Apart from capital issue
management, merchant banking divisions provide a number of other services including provision
of consultancy services relating to promotion of projects, corporate restructuring etc.

CONCLUSION
Indian markets amongst the best regulated markets in the world.
Need for greater integration with international markets in terms of capital flows, products
and processes.
Need to introduce new age financial products and to encourage.
Participation of new age investors.

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 The lack of an advanced and vibrant capital market can lead to underutilization of
financial resources. The developed capital market also provides access to the foreign
capital for domestic industry. Thus capital market definitely plays a constructive role in
the overall development of an economy.
SEBIs task is challenging and complex. SEBI has taken various measures to bring
sufficiency in the capital markets leading to growth and development of the economy.
Capital markets provide an additional investment option through the purchase of
securities.
Individuals are given the opportunity to diversify their investment risk.
Capital markets also provide a savings avenue.
Capital markets help mobilize domestic savings, hence facilitating the reallocation of
financial resources from dormant to more productive activities.
Companies have the opportunity to raise long-term finance through equity and debt
financing.
Capital markets enhance the inflow of international capital when international investors
participate in debt and equity instruments.

BIBLOGRAPHY

https://www.icsi.edu/WebModules/LinksOfWeeks/CAPITAL%20MARKETS
%20WEEK%20SUGGESTIONS.pdf
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 http://www.psgim.ac.in/journals/index.php/jcrm/article/view/222
http://study-material4u.blogspot.in/2012/07/chapter-6-capital-market-in-india.html

http://kalyan-city.blogspot.com/2010/09/organizational-structure-of-indian.html

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