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Chapter III Capital Market.ppt

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Chapter III Capital Market.ppt

  1. 1. Indian Capital Market
  2. 2. Organized Indian Financial System Money Market Instrument Capital Market Instrument Capital Market Money Market Primary Market Financial Instruments Financial Markets Financial Intermediaries Secondary Market Regulators
  3. 3. CAPITAL MARKET  The market where investment instruments like bonds and equities are traded is known as the capital market.  The primal role of this market is to make investment from investors who have surplus funds to the ones who are running a deficit.
  4. 4. Nature of capital market The nature of capital market is brought out by the following facts:  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
  5. 5. 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.
  6. 6. 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.
  7. 7. 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.
  8. 8. Role or objectives of Capital Markets • Mobilization of Savings • It facilitates Capital Formation • Promotion of Industrial Growth • Raising of long term Capital • Ready & Continuous Markets • It facilitates increased production & productivity. • Provision of a variety of Services
  9. 9. Types of capital market There are two types of capital market:  Primary market,  Secondary market
  10. 10. 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.
  11. 11.  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.
  12. 12. Features of Primary Market  It Is Related With New Issues  It Has No Particular Place  It Has Various Methods Of floating new issues:  It comes before Secondary Market
  13. 13. Methods Of floating new issues:  Following are the methods of raising capital in the primary market: i) Right Issue -Cheap way of raising finance -issuing shares to existing shareholders ii) Public Issue selling of shares to the public by issue of prospectus. there are two types of public issue a) Initial Public Offer(IPO)- when a company issue shares for the first time. b) Offer For Sale –instead of offering shares directly to the public by the company itself, it offers through intermediaries such as merchant banks or stock brockers, etc
  14. 14. iii) Private placement • It is the issue of securities of a company direct to one investor or a small group of investors. Generally the investors are the financial institutions or other existing companies or selected private persons such as friends and relatives of promoters.
  15. 15. 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.
  16. 16.  If an individual has bought some security and he now wants to sell it, he can do so through the medium of stock exchange to sell or purchase through the medium of stock exchange requires the services of the broker presently. .
  17. 17. Features of Secondary Market • It Creates Liquidity • It Comes After Primary Market • It Has A Particular Place • It Encourage New Investments
  18. 18. STOCK EXCHANGES • If an individual has some financial security and he wills to sell it, he can approach the Stock Exchange Companies which will help him to sell or purchase his security by the means of a Broker. ( sharekhan, hedge Equities Ltd, kotak securities…etc.
  19. 19. Functions of Stock exchanges • Ensuring ready market for securities • It helps to evaluate various securities. • Encourages capital formation • Provides safety and security of investments well defined rules and regulations in transactions. • Facilitate public borrowings enables govt to raise fund easily and quickly. • Provides wider marketability of securites • Provides employment.
  20. 20. Structure of Stock exchanges in India • There are 23 stock exchanges in India. • In India we have Bombay stock exchange , National stock exchange and the rest 21 are Regional stock exchanges.
  21. 21. 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
  22. 22. The Bombay Stock Exchange (BSE) • also known as Stock exchange of mumbai. • No 8 in world rankings • The corporate office is situated at Dalal street , mumbai • The number of shares traded in the bse is in the range of 40 to 50 million.
  23. 23. National Stock exchange (NSE) • Established in 1992 • Indias leading stock exchange covering various cities and towns. • Second largest in the world in terms of transactions.
  24. 24. CAPITAL MARKET REFORMS IN INDIA • The 1990s have witnessed the emergence of the securities market as a major source of finance for trade and industry in India. • A growing number of companies have been accessing the securities market rather than depending on loans from financial institutions / banks. • The corporate sector is increasingly depending on external sources for
  25. 25. MARKET STRUCTURE (JULY 31, 2005) • 22 Stock Exchanges, • Over 10000 Electronic Terminals at over 400 locations all over India. • 9108 Stock Brokers and 14582 Sub brokers • 9644 Listed Companies • 2 Depositories and 483 Depository Participants • 128 Merchant Bankers, 59 Underwriters • 34 Debenture Trustees, 96 Portfolio Managers • 83 Registrars & Transfer Agents, 59 Bankers to Issue • 4 Credit Rating Agencies
  26. 26. Book Building-A new issue mechanism in India • mechanism through which an offer price for IPOs based on investor’s demand is determined . • Auction of shares • Under this method the company does not price the securities in advance. Instead it offers the investors an opportunity to bid collectively.
  27. 27. The role of the stock exchange • Corporate governance • Creates investment opportunities for small investors • Government raises capital for development projects • Barometer of the economy
  28. 28. 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
  29. 29. Functions Of RBI Monetary Authority: Issuer of currency: Regulator and supervisor of the financial system: Authority On Foreign Exchange: Developmental role: Related Functions:
  30. 30. 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.
  31. 31. 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.
  32. 32. Indian Capital Market deficiencies • Lack of transparency • Physical settlement • Variety of manipulative practices • Institutional deficiencies • Insider trading