Indian Capital Market

Indian Capital Market

Indian Financial Market consists of Capital Market, Money Market and the Debt Market. The organized part of the Indian financial system can be classified from the point of view of regulatory authority as: Reserve Bank of India (RBI) regulating Commercial Banks, Foreign Exchange Markets, Financial Institutions and Primary Dealers (are registered participants of the wholesale dent market and bit at auctions for Government Debt, treasury bills). Securities and Exchange Board of India (SEBI) regulating Primary Market, Secondary Market, Derivatives Market and market intermediaries like Mutual Funds, Brokers, Merchant Banks, depositories.

Capital Market/Security Market

The capital market are relatively for long term (greater than one year maturity) financial instruments (e.g. bonds and stocks). Their can be as follows: a. The capital market is the indicator of the inherent strength of the economy. b. It is the largest source of funds with long and indefinite maturity for companies and there by enhances the capital formation of the country. c. If offers a number of investment avenues to investors. d. It helps in channeling the savings pool in the economy towards optimal allocation of capital in the country. The securities/ capital market is divided into two parts, namely, primary and secondary stock market.

 A market where new securities are bought and sold for the first time is called the New Issues market or the IPO market. The first public offering of equity shares or convertibles securities by a company, which is followed by the listing of a companys shares on a stock exchange, is known as an initial public offering (IPO). The primary market also includes issue of further capital by companies whose shares are already listed on the stock exchange. In the primary market, new issues may be made in three ways
Public issue Rights issues Private placement

Primary Market

In the primary market issues are made either at par or at premium

Secondary Market
A market in which an investor purchases a security from another investor rather than the issuer, subsequent to the original issuance in the primary market. It can be stated that secondary market are the stock exchanges and the over-the counter market. Secondary market is the segment in which outstanding issues are traded.

Primary Vs Secondary Market

Primary Secondary Deals with new securities Deals with old securities( which have been issued already)

It provides additional funds to the issuing the secondary markets can in no companies either for starting a new circumstance supply additional funds enterprise or for the expansion or since the company is not involved in the diversification of the existing one. transaction. Its contribution to company financing is direct.
It is not rooted in any particular spot and has no geographical existence. The stock exchanges have physical existence and are located in a particular geographical area.

Stock Market
Secondary markets are also referred to as Stock Exchanges. They are part of the capital market. The stock exchanges is one of the most important institutions in the capital market, which includes term lending institutions, banks, investors, companies, and just about anybody and everybody who are engaged in providing longterm capital, whether share capital or debt capital to the industrial sector. To state simply it is the place where the securities issued by the Government, public bodies and Joint Stock Companies are traded. The Bombay Stock Exchange, the oldest stock exchange in India was established in 1875. There are 24 stock exchanges in the country at present, out of which only eight have been given permanent recognition others need to apply every year for recognition.

Functions of Stock Exchange in India

The stock Exchange is a market place where investors buy and sell securities. Functions of the stock exchanges can be summarized as follows: 1) Liquidity and Marketability of Securities 2) Fair Price Determination 3) Source of Long term Funds 4) Helps in Capital Formation 5) Reflects the General State of Economy

Bombay Stock Exchange Limited

It is the oldest stock exchange in Asia with a rich heritage. Popularly known as BSE. It was established as The Native Share& Stock Brokers Association in 1875. It is the first stock exchange in the country to obtain permanent recognition in 1956 from Government of India under the Securities Contracts (Regulation) Act, 1956. The Exchange's pivotal and pre-eminent role in the development of the Indian capital market is widely recognized and its index, SENSEX, is tracked worldwide. The exchange has a nation-wide reach with a presence in 417 cities and towns of India. The exchange provides an efficient and transparent market for trading in equity, debt instruments and derivatives.

National Stock Exchange

NSE was promoted by leading Financial Institutions at the behest of the Government of India and was incorporated in November 1992 as a tax-paying company unlike other stock exchanges in the country. NSE commenced operations in the Wholesale Debt Market (WDM) segment in June 1994. The Capital Market (Equities) segment commenced operation in November 1994. Derivatives segment commenced in June 2000. It use satellite communication technology to energize participation from around 320 cities spread all over the country. NSE can handle up to 6 million trades per day in Capital Market segment.

Capital Market Instruments

The capital market instruments are the vehicles between the companies and the investors. Stock market is the vehicle and SEBI is the driver. These instruments are of two types namely primary market and secondary market instruments. Apart from derivative instruments, the following are the major mediums of approaching capital market:
Equity Shares Preference Shares Debentures/Bonds ADRs GDRs Derivatives

Stock/Equity Shares
Rights of common shareholders
Right to Income Voting Rights Proxies and Proxy contests Voting procedures

Issue Mechanism: the success of an issue depends, partly, on the issue mechanism. The methods by which new issue are made of
I. II. III. IV. V. Public Issue through Prospectus. Tender/Book building Offer for Sale Placement Method Rights Issue

American Depository Receipt (ADRs)

An ADR is a negotiable receipt which represents one or more depository shares held by a US custodian bank, which in turn represent underlying shares of non-issuer held by a custodian in the home country. ADR is an attractive investment to US investors willing to invest in securities of non US issuers for the following reasons: ADRs provides a means to US investor to trade the non-US companies shares in US dollars. ADR is a negotiable receipt issued in US capital market and is traded in dollars. The trading in effectively means trading in underlying shares. ADRs facilitates share transfers. ADR are negotiable and can be easily transferred among the investors like any other negotiable instrument. The transfer of ADRs automatically transfers the underlying share. the transfer of ADRs does not involve any stamp duty. The dividends are paid to the holders of ADRs in US dollars.

Global Depository Receipts (GDRs)

GDRs are negotiable certificates with publicly traded equity of the issuer as underlying security. An issue of depository receipts would involve the issuer, issuing agent to a foreign depository. Depository receipts are denominated in foreign currency and are listed on an international exchange. The principal purpose of the GDR is to provide international investors with local settlement.

Derivatives
A derivative is a financial instrument which derives its value from some other financial price. This other financial price is called underlying. The most important derivatives are futures and options.

 An electronic stock exchange based in India that is comprised of small- and medium-sized firms looking to gain access to the capital markets. Like electronic exchanges in the U.S. such as the Nasdaq, there is no central place of exchange and all trading is done through electronic networks. OTCEI has been promoted by UTI, IDBI, IFCI, LIC, GIC, SBI Capital Markets and Canbank Financial Services as a nonprofit making company under section 25 of the Companies Act, 1956. The OTCEI is a recognized Stock Exchange under Section 4 of the Securities Contracts (Regulation)Act, 1956. Companies listed on the OTC exchange enjoy the same status as companies listed on any other stock exchange in the country. OTC Exchange of India has picked the model from the NASDAQ system of USA.

Over The Counter Exchange of India (OTCEI)

The unique features of OTCEI are:

1. 2. 3. 4. 5. 6. 7. 8. Ringless Trading National Network Computerised Totally Exclusive list of companies Two ways of Making a Public Offer Faster Transfer and Trading Without Shares Investor Registration Trading Mechanism