Indian Financial System

Organized Indian Financial System

Regulators

Financial Instruments

Financial Markets

Financial Intermediaries

Forex Market

Capital Market

Money Market

Credit Market

Primary Market Secondary Market

Money Market Instrument

Capital Market Instrument

Money Market Vs Capital Market

It is for short term Supplies funds for WC Instruments are T-bill, CM, etc Each single instrument is of large amount Central bank and Commercial banks are major.

It is for long term Supplies funds for fixed capital requirement Instruments are shares, debentures, etc. Each single instrument is of small amount Development bank and insurance companies are major.

Conti..

These instruments do not have secondary market. Transactions are on over phone and no formal place Transaction without the help of broker.

These instruments have secondary market. Transactions are at formal place. Eg stock market. Transaction have to be conducted with the help of broker.

Why Capital Markets Exist

Capital markets facilitate the transfer of capital (i.e. financial) assets from one owner to another. They provide liquidity. Liquidity refers to how easily an asset can be transferred without loss of value. A side benefit of capital markets is that the transaction price provides a measure of the value of the asset.

Role of Capital Markets

Mobilization of Savings & acceleration of Capital Formation Promotion of Industrial Growth Raising of long term Capital Ready & Continuous Markets Proper Channelisation of Funds Provision of a variety of Services

Functions of a capital market

Disseminate information efficiently Enable quick valuation of financial instruments both equity and debt Provide insurance against market risk or price risk Enable wider participation Provide operational efficiency through -simplified transaction procedure - lowering settlement timings and - lowering transaction costs

Develop integration among -real sector and financial sector -equity and debt instruments -long term and short term funds -Private sector and government sector and -Domestic funds and external funds Direct the flow of funds into efficient channels through -investment -disinvestment -reinvestment

Factors contributing to growth of Indian Capital Market

Establishment of Development banks & Industrial financial institution. Legislative measures Growing public confidence

Increasing awareness of investment opportunities

Growth of underwriting business Setting up of SEBI Mutual Funds Credit Rating Agencies

Indian Capital Market

Market

Instruments

Intermediaries Regulator
SEBI

Primary

Secondary

Brokers Investment Bankers Stock Exchanges Underwriters Hybrid Debt

Equity

Players

CRA

Corporate Intermediaries

Individual

Banks/FI

FDI /FII

Secondary Market

Secondary/Stock market!!!!

Stock Exchanges in INDIA

Mangalore Stock Exchange Hyderabad Stock Exchange Uttar Pradesh Stock Exchange Coimbatore Stock Exchange Cochin Stock Exchange Bangalore Stock Exchange Saurashtra Kutch Stock Exchange Pune Stock Exchange National Stock Exchange OTC Exchange of India Calcutta Stock Exchange
Inter-connected Stock Exchange (NEW) Madras Stock Exchange

Bombay Stock Exchange Madhya Pradesh Stock Exchange Vadodara Stock Exchange The Ahmedabad Stock Exchange Magadh Stock Exchange Gauhati Stock Exchange Bhubaneswar Stock Exchange Jaipur Stock Exchange Delhi Stock Exchange Assoc Ludhiana Stock Exchange

How does the stock market function?

Stock exchanges Brokers Registrars Depositories and their participants Securities and Exchange Board of India (SEBI) Financial Regulators SEBI RBI Ministry of finance

The money market can be defined as a market for short-term money and financial assets that are near substitutes for money. The term short-term means generally a period upto one year and near substitutes to money is used to denote any financial asset which can be quickly converted into money with minimum transaction cost.

1.
2. 3. 4. 5.

Call/Notice Money Treasury Bills Term Money Certificate of Deposit Commercial Papers

Call/Notice money is the money borrowed or lent on demand for a very short period. When money is borrowed or lent for a day, it is known as Call (Overnight) Money. Intervening holidays and/or Sunday are excluded for this purpose. Thus money, borrowed on a day and repaid on the next working day, (irrespective of the number of intervening holidays) is "Call Money". When money is borrowed or lent for more than a day and up to 14 days, it is "Notice Money". No collateral security is required to cover these transactions.

Treasury Bills are short term (up to one year) borrowing instruments of the union government. It is an IOU of the Government. It is a promise by the Government to pay a stated sum after expiry of the stated period from the date of issue (14/91/182/364 days i.e. less than one year). They are issued at a discount to the face value, and on maturity the face value is paid to the holder. The rate of discount and the corresponding issue price are determined at each auction.

Certificates of Deposit (CDs) is a negotiable money market instrument and issued in dematerialised form or as a Usance Promissory Note, for funds deposited at a bank or other eligible financial institution for a specified time period. Guidelines for issue of CDs are presently governed by various directives issued by the Reserve Bank of India, as amended from time to time.

CDs can be issued by (i) scheduled commercial banks excluding Regional Rural Banks (RRBs) and Local Area Banks (LABs); and (ii) select all-India Financial Institutions that have been permitted by RBI to raise short-term resources within the umbrella limit fixed by RBI. Banks have the freedom to issue CDs depending on their requirements. An FI may issue CDs within the overall umbrella limit fixed by RBI, i.e., issue of CD together with other instruments viz., term money, term deposits, commercial papers and intercorporate deposits should not exceed 100 per cent of its net owned funds, as per the latest audited balance sheet.

CP is a note in evidence of the debt obligation of the issuer. On issuing commercial paper the debt obligation is transformed into an instrument. CP is thus an unsecured promissory note privately placed with investors at a discount rate to face value determined by market forces. CP is freely negotiable by endorsement and delivery.

A company shall be eligible to issue CP provided - (a) the tangible net worth of the company, as per the latest audited balance sheet, is not less than Rs. 4 crore; (b) the working capital (fund-based) limit of the company from the banking system is not less than Rs.4 crore and (c) the borrowal account of the company is classified as a Standard Asset by the financing bank/s. The minimum maturity period of CP is 7 days. The minimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies. (for more details visit www.indianmba.com faculty column)

JARGON OF EQUITY MARKET:

SECURITY

BOND
STOCK 1)COMMON STOCKS 2)PREFERRED STOCKS

SHARE

MUTUAL FUNDS.
PAR VALUE vs. MARKET VALUE

BULLISH vs. BEARISH

The role of the stock exchange

Corporate governance
Creates investment opportunities for small investors Government raises capital for development projects Barometer of the economy

Functions Of SEBI

Regulates Capital Market.

Checks Trading of securities.

Checks the malpractices in securities market.
It enhances investor's knowledge on market by providing education.

It regulates the stockbrokers and sub-brokers.

To promote Research and Investigation

Functions Of RBI
Monetary Authority: Issuer of currency:
Regulator and supervisor of the financial system: Authority On Foreign Exchange:

Developmental role: Related Functions:

WHY STOCK PRICE RISES?

The price of every stock increases or decreases for the following possible reasons: News about company. News about the country. Exchange rate regime. Depends on demand and supply for that stock.

DRAWBACKS OF INDIAN STOCK MARKET: Unethical practices. Big irrational greed, excessive speculation. Lack of protection to interests of the genuine and small investors . Trading is extremely thin and restricted. Structural and organisational imbalance in the growth of the stock market. Volatility of the market has increased over the years.

HOW TO MAKE MONEY FROM CAITAL MARKET?

patience, profound knowledge. Best guess. Diversification . Portfolio management.

Indian Capital Market deficiencies

Lack of transparency Physical settlement Variety of manipulative practices Institutional deficiencies Insider trading