Indian Capital Market

Presented By :Vivek AgarwalPoonam GautamVinod PindoriyaArjuna Rajendran

Capital Market A market in which individuals and institutions trade financial

securities. Organizations/institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds. Thus, this type of market is composed of both the primary and secondary markets.

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.

Capital Market is where trading in financial instruments is conducted to raise capital.

Three categories of participants: Issuer of securities: Borrowers or deficit savers who issue

securities to raise funds(corporate sector, central government).

Investors: Surplus savers who deploy savings by subscribing to these securities(include retail investors, mutual funds).

The Intermediaries: Agents who match the need of the users and suppliers of funds.

Nature Of Capital Market The nature of capital market is brought out by theFollowing facts:

Its has two segments primary and secondary market. It performs trade-off function. It deals in long-term securities. It helps in creating liquidity. It creates dispersion in business ownership. It helps in capital function.

Role and Function of Capital Market

Capital Formation

Avenue Provision of Investment

Speed up Economic Growth and Development

Mobilization of Savings

Proper Regulation of Funds

Service Provision

Continuous Availability of Funds

Factors affect the Capital Market

Economy of the Country

Money Supply

Interest Rate

Corporate Results

Global Capital Market Scenario

Foreign Funds Inflow

Strength/Weakness of the local currency

Types of Capital Market

CAPITAL MARKET

PRIMARY MARKET

SECONDARY MARKET

PUBLIC ISSUE

RIGHT ISSUE

BONUS ISSUE

PRIVATE PLACEMENT STOCK MARKET

Primary 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 (NIM).

Features of Primary Market: This is the market for new long term capital. The primary

market is the market where the securities are sold for the first time. Therefore it is also called New Issue Market (NIM).

In a primary issue, the securities are issued by the company directly to investors.

The company receives the money and issue new security certificates to the investors.

Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.

The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions.

Classification of IssuesISSUES

RIGHTPRIVATE

PLACEMENTPUBLIC

INITIAL PUBLIC

OFFERING

FURTHER PUBLIC

OFFERING

FRESH ISSUE

OFFER FOR SALE

FRESH ISSUE

OFFER FOR SALE

Classification of IssuePublic Issue : It involves raising of funds directly from the public and get

themselves listed on the stock exchange. In case of new companies ,the face value of the securities is

issue at par; and In the case of existing companies, the face value of securities

are issued at premium. Initial public offer (IPO): When an unlisted company makes

either a fresh issue of securities or offers its existing securities for sale or both for the first time to the public, it is called an IPO. This payes way for listing and trading of the issuer’s securities in the Stock Exchanges.

Con… Further public offer (FPO): When an already listed company

makes either a fresh issue of securities to the public or an offer for sale to the public, it is called a FPO.

Right Issue: Right issue is the method of raising additional finance from

existing members by offering securities to them on pro rate bases. The rights offer should be kept open for a period of 60 days and should be announced within one month of the closure of books.

Cont… Bonus Issue: Companies distribute profits to existing shareholders by way

of fully paid bonus share in lieu of dividend. These are issued in the ratio of existing shares held. The shareholders do not have to make any additional

payment for these shares.

Private Placement: Private Placement is an issue of shares by a company to a

select group of persons under the Section 81 of the companies act 1956. It is a faster way for a company to raise equity capital.

Secondary Market Secondary Market refers to a market where securities are

traded after being initially offered to the public in the primary market and/or listed on the stock exchange.

It is the trading avenue in which the already existing securities are traded amongst investors.

Banks facilitate secondary market transactions by opening direct trading and demat accounts to individuals and companies.

Cont.… 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.

Secondary market comprises of Equity market and Debt market.

Financial instruments deals in secondary market

Equity Shares: An equity share is commonly referred to as an ordinary

share. It is an form of fractional ownership in which a

shareholder, as a fractional owner, undertakes the entrepreneurial risk associated with the business venture.

Holders of the equity shares are members of the company and have voting rights.

Bonus Shares: These shares are issued by the companies to their

shareholders free of cost by capitalization of accumulated reserves from the profit earned in the earlier years.

Cont.… Right shares: This refers to the issue of new securities to the existing

shareholders, at a ratio to those shares already held.

Dividends: A taxable payment declared by a company's board of directors

and given to its shareholders out of the company's current or retained earnings, usually quarterly.

Dividends are usually given as cash (cash dividend), but they can also take the form of stock (stock dividend) or other property.

Cont…Preference shares: These shareholder do not have voting rights. Owners of these shares are entitled to a fixed dividend or a

dividend calculated at a fixed rate to be paid regularly before any dividend can be paid in respect of equity shares.

These shareholders also enjoy priority over the equity shareholders in the payment of surplus.

Securities and Exchange Board of India (SEBI)

The Securities and Exchange Board of India was enacted on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992

U. K. SINHA is current CMD of SEBI

Role of SEBI in Indian Capital MarketPower to make rules for controlling stock exchange :SEBI has power to make new rules for controlling stock exchange

in India. For example, SEBI fixed the time of trading 9 AM and 5 PM in stock market.

To provide license to dealers and brokers :SEBI has power to provide license to dealers and brokers of

capital market. If SEBI sees that any financial product is of capital nature, then SEBI can also control to that product and its dealers.

To make new rules on carry - forward transactions :Share trading transactions carry forward can not exceed 25% of broker's total transactions.90 day limit for carry forward.

Cont.…To audit the performance of stock market :SEBI uses his powers to audit the performance of different Indian stock exchange for bringing transparency in the working of stock exchanges. To Stop fraud in Capital Market :SEBI has many powers for stopping fraud in capital market.> It can ban on the trading of those brokers who are involved in fraudulent and unfair trade practices relating to stock market. > It can impose the penalties on capital market intermediaries if they involve in insider trading. To Control the Merge, Acquisition and Takeover the companies :SEBI sees whether this merge or acquisition is for development of business or to harm capital market.

Cont.…To create relationship with ICAI :SEBI creates good relationship with ICAI for bringing more transparency in the auditing work.Introduction of derivative contracts on Volatility Index :For reducing the risk of investors, SEBI has now been decided to permit Stock Exchanges to introduce derivative contracts on Volatility Index To Require report of Portfolio Management Activities :SEBI has also power to require report of portfolio management to check the capital market performance. To educate the investors :Time to time, SEBI arranges scheduled workshops to educate the investors.

ReferenceText book Saha Tapash Rangan/ 2009(capital market and SEBI

regulation). Excel books Publication.Raste Deepak R./2011(capital market in India &Reforms &

regulation)New century Publication.

Research paper M. Tyahiripal raju ,2012 “Initial public offering grade matter

short term and long term” pg. no:3to 5. Shallu, 2014 “Indian capital market and impact SEBI”

vollume-2, ISSB- 2319-7943,PG no. 1 TO 9.

ReferenceWeb site SEBI (

http://www.sebi.gov.in/sebiweb/stpages/about_sebi.jsp)Government of India (

http://business.gov.in/business_financing/capital_market.php).

News paper Bhayani rajesh, “secondary market manipulator” Business

standard, 21 February2015. Shaji vikraman, “Need for cleaner capital market”, the

economic times, 8 January 2010 .