Ch 1 capital mkt

Ch. 1 Capital Market
10%
Meaning
Importance of Indian C.M.
Structure of Indian C.M.
Recent Trends in Indian C.M

Mayur Patel(NIM BBA College)

Bombay Stock Exchange-BSE

2 Stock Exchange & Portfolio Management(SEPM) BY-Mayur Patel

Meaning of Capital Market
 A capital market is a market for securities (debt or
equity), where business enterprises (companies)
and governments can raise long-term funds.
 It is defined as a market in which money is
provided for periods longer than a year, as the
raising of short-term funds takes place on other
markets (e.g., the money market).
 Capital Market basically means a market in which
financial securities are traded between individuals
or institutions.
 Capital markets may be classified as primary
markets and secondary markets. In primary
markets, new stock or bond issues are sold to
investors. In the secondary markets, existing
securities are sold and bought among investors
or traders, usually on a securities exchange, over-
the-counter, or elsewhere.

SEBI

CAPITAL MONEY
MARKET MARKET

PRIMARY SECONDARY
MARKET MARKET

Stock Exchange & Portfolio
5 Management(SEPM) BY-Mayur Patel

Indian Capital markets - Chronology
 1994-Equity Trading commences on NSE
 1995-All Trading goes Electronic
 1996- Depository comes in to existence
 1999- FIIs Participation- Globalisation
 2000- over 80% trades in Demat form
 2001- Major Stocks move to Rolling Sett
 2003- T+2 settlements in all stocks
 2003 - Demutualisation of Exchanges


Importance/Significance/ Role of
Indian Capital Market
 Mobilization of Savings &
acceleration of Capital Formation
 Promotion of Industrial Growth
 Raising of long term Capital
 Ready & Continuous Markets
 Proper Channelisation of Funds
 Use of updated technology is
possible


CLASSIFICATION OF FINANCIAL MARKETS
Classificati
on of
financial
markets

Organized
Markets Unorganiz
ed Markets

Money
lenders, In
Capital Money
digenous
Market Market
bankers, et
c
Call Money Market,
Industrial Govt. Long term
Commercial bills
Securities Securities Loan
Treasury Bills
markets Market Market
Short term loan market

Market for
Primary Secondary Term Loan Financial Market for
Market market market Guarantee Mortgages
s

ORGANIZED MARKET
 Standardized rules and regulations governing their financial dealings.
 A high degree of institutionalization and instrumentalisation.
 Subject to strict supervision and the control by the RBI or other regulatory
bodies.
 Can be further divided into two:
A) Capital market
B) Money market

A) CAPITAL MKT:
Is a market for financial assets which have a long or indefinite maturity.
Generally deals with long term securities.
Divided into three:
1)Industrial securities market
2) Government securities market
3) Long term loans market

CAPITAL MARKET
1) Industrial securities market:
 A market for industrial securities namely, equity shares, preference
shares, debentures or bonds.
 further can be divided in Two:
a) Primary market: - Public issues, Rights issues, Private
placement
b) Secondary market:
2) Govt securities market:
 Called Gilt edged securities market.
 Its a market where Govt securities are traded.
 - Short term(traded in money market) and long term(traded here).
 Securities issued by the Central Government, State Govt., Semi-govt
authorities like City Corp., Port trusts, etc. Improvement Trusts, State
Electricity Boards
 Issued in denominations of 100s
Stock Exchange & Portfolio Commercial Banks for SLR requirement,
 Major participants:
 Secondary market very narrow

CAPITAL MARKET
3) Long- term Loans Market
 MAJOR PARTICIPANTS : Development Banks and commercial
banks
 Can be further divided into three:
i) Term- loans market
To supply long term and medium term loans to corporate
customers
Institutions like IDBI, ICICI, IFCI
ii) Mortgages Market
Is a loan against security of immovable property like real
estate.
Transfer of interest in a specific immovable property to
secure a loan is called mortgage


CAPITAL MARKET
 iii) Financial Guarantee Market:
 Finance provided against guarantee of a reputed person in
financial circle
 Guarantee: A contract to discharge the liability of third party in
case of his default
 Acts as a security from the creditors point of view.
 Financial guarantee in India relates to
 Deferred payments for imports and exports
 Medium and long term loans raised abroad
 Loans advanced by banks and other FIs
 Guarantees provided by commercial banks, development
banks, Governments and other specialized institutions like
ECGC(Export Credit Guarantee Corp.) and DICGC (Deposit
Insurance and Credit Guarantee Corp.)


Reforms in Indian Capital Market
Since 1992
 Capital Issues (Control) Act of 1947 repealed and the
office of Controller of Capital Issues abolished; control
over price and premium of shares removed.
Companies now free to raise funds from securities
markets after filing prospectus with the Securities and
Exchange Board of India (SEBI).
 The power to regulate stock exchanges delegated to
SEBI by the Government.
 SEBI introduces regulations for primary and other
secondary market intermediaries, bringing them within
the regulatory framework.


Since 1992

 SEBI introduces a code of advertisement for public
issues to ensure fair and truthful disclosures.
 Disclosure norms further strengthened by introducing
cash flow statements.
 New issue procedures introduced—book building for
institutional investors—aimed at reducing costs of
issue.
 SEBI reconstitutes the governing boards of the stock
exchanges and introduces capital adequacy norms for
broker accounts.
 Private mutual funds permitted and several such
Stock Exchange & Portfolio set up. All mutual funds allowed to
funds already
apply for firm allotment in public issues—also aimed

Since 1992

 Over-the-Counter Exchange of India formed.
 National Stock Exchange (NSE) establishment as a stock
exchange with nationwide electronic trading.
 Bombay Stock Exchange (BSE) introduces screen-based
trading; 15 stock exchanges now have screened-based trading.
BSE granted permission to expand its trading network to other
centers.
 Capital adequacy requirement for brokers enforced.
 System of mark-to-market margins introducedin the stock
exchanges.
 Stock lending scheme introduced.
 Transparency brought out in short selling.

Since 1992

 National Securities Clearing Corporation, Ltd. set up
by NSE.
 SEBI strengthens surveillance mechanisms and
directs all stock exchanges to have separate
surveillance departments.
 SEBI strengthens enforcement of its regulations.
 The Depositories Act enacted to facilitate the
electronic book entry transfer of securities through
depositories.
 Guidelines for Offshore Venture Capital Funds
announced. SEBI regulations for venture capital funds
16 become effective.
Management(SEPM) BY-Mayur Patel

Recent Trends in Indian Capital
Market
 Introduction of Derivative products - Index / Stock
Futures & Options
 Margin Lending
 Securities Lending
 Institutionalization –major role – MF/FI/FII/VCF/ -
pressure on the company to perform/disclosure.
 Globalization – opening of market to overseas player -
E.g. FDI/portfolio management for FII/NRI etc. Indian
corporate also access overseas market.


Market

 Four products rolled out- Index / Stock - Futures &
Options
 Margining System - VAR based / Market wide limits
 Client level computation of positions & margining
 Emergence of institutions –
SEBI/NSE/NSDL/CDSL/CCIL etc.
 Modernization – use of technology for
trading/clearing/settlement etc. Role of IT for
clearing, settlement, monitoring etc


Market
 1994-Equity Trading commences on NSE
 1995-All Trading goes Electronic
 1996- Depository comes in to existence
 1999- FIIs Participation- Globalisation
 2000- over 80% trades in Demat form
 2001- Major Stocks move to Rolling Sett
 2003- T+2 settlements in all stocks
 2003 - Demutualisation of Exchanges


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