Presentation on Capital Market

in India

S-18

Capital Markets
It is an organized market mechanism for effective and efficient

transfer of money capital or financial resources from the investing

class to the entrepreneur class in the private and public sector of
the economy.
Capital market for long term funds.
The capital market provides long term debt and equity finance

for govt. and corporate.

Capital market facilitates the dispersion of business ownership

and reallocation of financial resources among corporate and

industries.

Dimensions of capital market

Directly responsible for the following activities: Mobilization or concentration of national saving

for economic development.

Mobilization and import of foreign capital and
foreign investment capital plus skill to fill up the
deficit in the required financial resources to
maintain the expected rate of economic growth.
Productive utilization of resources
Directing the flow to funds of high yields and also
strive for balanced and diversified
industrialization.

Capital market mechanism

Supply of
funds

Individuals
Institution
s
Governme
nt
Investors
Lenders
Sellers of money
capital

Middlemen

Capital
Market

Stock exchange
New issue
market
Finance and
Entrepreneurs
investment
Borrowers corp.
Clearing house
for long term or
permanent

Demand
for funds

Individuals
Institution
s
Governme
nt
Buyers of
money capital

Capital Market Structure

Marketable Securities

Govt.
securities
Corporate
securities
PSUs
Bonds
UTI
Mutual
Funds

New Issues
Market
players
original

Stock
market
intermediari
es
New Issues
Market
players for
Issues

Non-Marketable
Securities
Bank
Deposits
Deposits
with
Companie
s
Loans and
advances
of banks
and FIs.
POC and
deposits

Special features of the Indian

capital market
Greater reliance on debt instrument as

against equity and in particular borrowing

from financial institution.
Issues of debenture, particularly convertible
debentures with automatic or compulsory
from conversion into equity without the
normal option given to investors.
Avoidance of underwriting by some cos
Fast growth of mutual funds and subsidiaries
of banks for financial services.

Capital market instruments

Equity shares
Preference shares
Non-voting equity shares
Cumulative convertible preference shares
Company fixed deposits
Debentures/ bonds
Global depository receipts

Structure of Capital Markets

Primary Markets

Secondary Markets

When companies need financial resources

for its expansion, they borrow money
from investors through issue of securities.

The place where such securities are

traded by these investors is known as the
secondary market.

Securities issued
a)Preference Shares
b)Equity Shares
c)Debentures

Securities like Preference Shares and

Debentures cannot be traded in the
secondary market.

Equity shares is issued by the under

writers and merchant bankers on behalf
of the company.

Equity shares are tradable through a

private broker or a brokerage house.

People who apply for these securities are:

a)High networth individual
b)Retail investors
c)Employees
d)Financial Institutions
e)Mutual Fund Houses
f)Banks

Securities that are traded are traded by

the retail investors.

One time activity by the company.

Helps in mobilizing the funds for the

investors in the short run.

Stock Exchange
An organised market place where
securities are traded.
Securities include (i). Shares,
scrips, bonds, debentures, (ii).
Government securities.
Securities are issued by Govt,
Semi Govts bodies, PSUs & COs
S-18

Functions of Stock Exchange

To provide ready market for buying & selling
of securities.
Facilitates speculation.
Promotes saving habit among general
public.
Promotes industrial growth & economic
development of the country.
Provides platform to corporate to raise
funds.
S-18

10

STRUCTURE OF THE SECURITIES MARKET

Securities
Market

Equity
Market

Government
Securities
Market

Debt
Market

Corporate
Debt
Market

Derivatives
Market

Money
Market

Options
Market

Futures
Market

Terminology
Capital Market
Primary Market
Secondary Market
Bear Market
Bull Market
Blue Chips Companies
Gilt Edged Securities
Kerb Trading
Public Issue
S-18

12

Capital Market -- The market for relatively

long-term (greater than one year original
maturity) financial instruments.
Primary Market -- A market where new
securities are bought and sold for the first
time (a new issues market).
Secondary Market -- A market for existing
(used) securities rather than new issues.
S-18

13

Public Issue
Public Issue -- Sale of bonds or stock to
the general public.
Securities are sold to hundreds, and often
thousands, of investors under a formal contract
overseen by federal and state regulatory
authorities.
When a company issues securities to the
general public, it is usually uses the services of
an investment banker.

Investment Banker
Investment Banker -- A financial institution that
underwrites (purchases at a fixed price on a fixed
date) new securities for resale.
Investment banker receives an underwriting spread
when acting as a middleman in bringing together
providers and consumers of investment capital.
Underwriting spread -- the difference between the
price the investment bankers pay for the security
and the price at which the security is resold to the
public.

Traditional Underwriting
Underwriting -- Bearing the risk of not being able
to sell a security at the established price by
virtue of purchasing the security for resale to the
public; also known as firm commitment
underwriting.
underwriting
If the security issue does not sell well, either
because of an adverse turn in the market or
because it is overpriced, the underwriter, not
the company, takes the loss.

Blue chips generally sell high-quality,

widely accepted products and services.
Blue chip companies are known to
weather downturns and operate profitably
in the face of adverse economic
conditions, which helps to contribute to
their long record of stable and reliable
growth.
S-18

17

Gilt-edged securities are bonds issued

by some national governments. The term
is of British origin, and then referred to the
debt securities issued by the Bank of
England, whose paper certificates had a
gilt (or gilded) edge. Hence, they are
known as gilt-edged securities, or gilts
for short.
S-18

18

Kerb trading
On the curb is a financial term that
describes the act of trading securities
outside the mainstream stock exchange,
either because the company operating the
exchange has very strict listing
requirements (cf: alternative stock
exchange) or because investors are so
interested to continue trading even after
the official ...
S-18

19

BENEFITS of STOCK EXCHANGE

(SE)
To companies
Image of company goes up once the
shares are listed on a stock exchange.
Wide market for shares & debentures.
Quicker response from investors to the
listed securities.
Enhancing bargaining position of a
company in case of its merger.
S-18

20

Benefits to community
Encourage people to save money.
Helps in capital formation.
Performance of any company is
reflected through stock exchange. like
infosys,
Encouraging private COs to go public.
Encouraged by recent boom 8000+ COs
are going public by offering shares.
S-18

21

Benefits to Investors
Ready market for trading.
Interest is safeguard through SEBI
Law.
Hedge against inflation.
SE provides day to day informations
that are published in all dailies.
Multiplies your investment.

S-18

22

Speculators on a Stock Exchange

Three Speculators
1. Bull or Tejiwalla
2. Bear or Mandiwala
3. Stag

S-18

23

Bull (Tejiwala)
A person who first buys & then sells
shares expecting a rise in price of
that share.
So, he buys the shares & when
prices go up, he sells them & enjoys
price difference.
S-18

24

Bear (Mandiwala)
He first sells & then buys the shares
expecting a fall in prices of a
particular securities.
So when prices would fall in future he
will buy at cheaper rtes & then make
a profit.
S-18

25

Stag
A speculator who always applies for
shares of a new company .
He acts with an intention of snatching
a quick profits.

S-18

26

Regulation of Stock Exchange

S-18

27

Securities Contracts
(Regulation) Act (SCRA)
In India the dealings on the
SEs are regulated by
1. SCRA, and
2. the SEBI
S-18

28

Securities Contracts (Regulation)

Act (SCRA)
Enacted in 1956, came into force on Feb 20, 1957

Objectives of the Act:

1. Provides power to central govt to regulate SE
2. To promote healthy development of SEs.
3. To prevent unhealthy speculation.
4. To protect the interest of the investors.
5. To provide uniformity among different SEs.
S-18

29

Provisions of SCRA
1. Grant of recognition to stock exchange.
2. Submission of periodical returns.
3. Power to direct rules to be made or to
4.
5.
6.
S-18

make rules.
Power to make or amend by-laws.
Power to impose penalties.
Power to make listing of securities
compulsory..
30

SEBI
Objective of SEBI are:To protect the interests of

investors in securities
To promote the development of
SEs
To regulate the securities market
S-18

31

Powers and Functions

To regulate the businesses in all SEs.
Registering and regulating the working of
intermediaries.
Registering and regulating MFs.
Prohibiting fraudulent, unfair trade practices.
Prohibiting insider trading in securities.
Promoting investors education & awareness.
Regulating mergers and acquisitions etc
S-18

32

This time like all times is a good

one, if we but know what to do with
it.
Prof. Harjit.
THANK YOU!

S-18

33