Indian Capital market

A market for Securities

A capital market (Securities Market) is a market for

securities (Debt / Equity), where business enterprises

(Companies) and government can raise long term

funds.
The capital market includes the stock market and the bond market

Structure of Security market

Securities Market

Equity Market

Debt Market

Derivatives Market

Government Securities Market

Corporate Debt Market

Money Market

Options Market

Futures Market

What is a Security?

Security is a generic term that refers to a debt or equity issued by a borrower or issuer.
- Debt security or bond an IOU promising periodic payments of interest and/or principal from a claim on the issuers earnings.

- Equity or stock an IOU promising a share in the ownership and profits of the issuer

Market Participants In the Debt Market

1. Central Government, raising money through bond issuances, to fund budgetary deficits and other short and long term funding

requirements.
2. Reserve Bank of India, as investment banker to the government, raises funds for the government through bond and t-bill issues, and also participates in the market through open-market operations, in the course of conduct of monetary policy. The RBI regulates the bank rates and repo rates and uses these rates as tools of its monetary policy. Changes in these benchmark rates directly impact debt markets and all participants in the market.

03.Primary Dealers, who are market intermediaries appointed

by the Reserve Bank of India who underwrite and make market

in government securities, and have access to the call markets and repo markets for funds.

04. State Governments, municipalities and local bodies, which

issue securities in the debt markets to fund their developmental projects, as well as to finance their budgetary deficits.

5.

Public Sector Units are large issuers of debt securities, for

raising funds to meet the long term and working capital needs.
These corporations are also investors in bonds issued in the debt markets. 6. Corporate issue short and long term paper to meet the financial requirements of the corporate sector. They are also investors in debt securities issued in the debt market.

7. Banks are the largest investors in the debt markets,

particularly the treasury bond and bill markets. They have a statutory requirement to hold a certain percentage of their deposits (currently the mandatory requirement is 24% of deposits) in approved securities (all government bonds qualify) . Banks are very large participants in the call money and overnight markets. They are arrangers of commercial paper issues of corporate. They are also active in the interbank term markets and repo markets for their short term funding requirements. Banks also issue CDs and bonds in the debt markets.

8. Mutual Funds have emerged as another important players in the debt markets, owing primarily due to the growing number of bond

funds that have mobilized significant amounts from the investors.

09. Public Sector Financial Institutions regularly access debt markets with bonds for funding their financing requirements and working capital needs. They also invest in bonds issued by other entities in the debt markets

10.FIIs 11.Provident Funds 12.Charitable Institutions

Participants in Equity Market

01.Individuals
02.Corporate

03.Commercial Banks
04.Investment bankers

05.Other Investors

Financial instruments in the Capital Market

Equity Segment : Equity shares, preference shares, convertible preference shares

non-convertible preference shares etc

Debt segment : Debentures, zero coupon bonds, Deep discount bonds etc. Hybrid Instruments : Hybrid instruments have both the features of equity and debenture. This kind of instruments is called as hybrid instruments. Examples: Convertible Debentures.

Nature of capital market

It Has Two Segments It Deals In Long-Term Securities It Performs Trade-off Function It Creates Dispersion In Business Ownership It Helps In Capital Formation It Helps In Creating Liquidity

Types of capital market

There are two types of capital market: Primary market, Secondary market

Primary Market
It is that market in which shares, debentures and other securities are sold for the first time for collecting long-term capital. This market is concerned with new issues. Therefore, the primary market is also called NEW ISSUE MARKET.

 In this market, the flow of funds is from savers to borrowers (industries), hence, it helps directly in the capital formation of the country.

The money collected from this market is generally

used by the companies to modernize the plant,

machinery and buildings, for extending business,

and for setting up new business unit.

The

methods of raising capital in the primary

market:

i) Public Issue ii) Offer For Sale iii) Private Placement /Private Equity iv) Right Issue

It

comes before Secondary Market

Secondary Market
The secondary market is that market in which the buying and selling of the previously issued securities is done. The transactions of the secondary market are generally done through the medium of stock exchange. The chief purpose of the secondary market is to create liquidity in securities. If an individual has bought some security and he now wants to sell it, he can do so through the medium of stock exchange

Features of Secondary Market

It Creates Liquidity It Comes After Primary Market

It Has A Particular Place

It Encourages New Investments

CAPITAL MARKET RISK

Investment

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

Risk in the Stock Market

Stock prices keep fluctuating over a wide range unlike the bank deposits or government bonds. The efficient market hypothesis explains the effect of fundamental factors in changing the price of the stock market.

Risk in the Bond Market

Capital market risk in the bond market arises due to interest rate changes. There is an inverse relationship existing between the interest rate and the price of the bond. Hence the bond prices are sensitive to the monetary policy of the country as well as economic changes.