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NAME- Daljeet Kaur Aulakh

ROLL NO- 3417

CLASS- T.Y.B.M.S
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Capital Market is any market in which securities are traded. Capital markets include the stock and
bond markets. Companies and government use capital markets to raise funds for their operations; for
example, a company may issue an IPO while a government may issue a bond in order to conduct new or
expand ongoing activities. Investors purchase securities in the capital markets in order to extract a return
and earn profit of the securities. Capital markets include 
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 , such as IPOs that are placed
with investors through underwriters, and  

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 , in which all subsequent trading takes
place. Government agencies in different countries regulate local capital markets, though some, especially
exchanges, play some role in regulating themselves.

The primal role of the capital market is to channelize investments from investors who have
surplus funds to the ones who are running a deficit. The capital market offers both long term and
overnight funds. The financial instruments that have a short or medium term maturity periods are dealt in
the money market whereas the financial instruments that have a long maturity periods are dealt in capital
market. The different types of financial instruments that are traded in the capital markets are equity
instruments, credit market instruments, insurance instruments, foreign exchange instruments, hybrid
instruments and derivative instruments.
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rc Capital markets facilitate the transfer of capital (i.e. financial) assets from one owner to another. c
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Îc Liquidity refers to how easily an asset can be transferred without loss of value.

rc A side benefit of capital markets is that the transaction price provides a measure of the value of
the assets.

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½c Disseminate information efficiently.

½c Enable quick valuation of financial instruments- both equity and debt.

½c Provide insurance against market risk or price risk.

½c Enable wider participation.

½c Provide operational efficiency through

„c Simplified transaction procedure
„c Lowering settlement timings
„c Lowering transaction costs

½c Develop integration among

„c Real sector and financial sector
„c Equity and debt instruments
„c Long term and short term funds
„c Private sector and government sector
„c Domestic funds and external funds

½c Direct the flow of funds into efficient channels through

„c Investment
„c Disinvestment
„c Reinvestment
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1.c To understand the scenario of capital market.

2.c To study the capital market in India.
3.c To study the capital market in USA.
4.c To highlight the difference between capital market in India and USA.
5.c To make a PESTEL analysis of both.

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(cof a business entity represents the original capital paid into or invested in the
business by its founders.

)*c+
 ,c(cthe value of an ownership interest in property, including shareholders equity in a

business.

$-c* - these are sometimes referred as balanced funds. They are mutual funds that invest in a mix
of stocks and bonds. They give investors a single option for achieving diversification

 - * c( a debenture is unsecured loan you offer to a company. The company does not give any
collateral for the debenture, but pays a higher rate of interest to its creditors. Debentures are different
from stocks and bonds, although all three are types of investment.

 * c± a security is a fungible, negotiable instrument representing financial value. Securities are
broadly classified into debt securities and equity securities.

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(cit is the process by which the customer owned company becomes share holder owned
company, frequently this is the step toward the initial public offering (IPO).

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  (cINDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIAc

" (cINDUSTRIAL FINANCE CORPORATION OF INDIAc

(cINDUSTRIAL DEVELOPLMENT BANK OF INDIAc

(cUNIT TRUST BANK OF INDIA

% (cLIFE INSURANCE CORPORATION

/(cNATIONAL ASSOCIATION OF SECURITIES DEALERS AUTOMATED QUOTATION

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1.c In this project capital market of only India and USA are taken into consideration

2.c The comparison is done on the basis of PESTEL analysis of both.

3.c The present study is concerned with the analytical data only.
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The  
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 cis one of the oldest capital markets in Asia which evolved around 200 years ago.

Chronology of the Indian capital markets-

01234 Trading of corporate chares and stocks in bank and cotton presses in Bombay.
01534 Sharp increase in the capital market brokers owing to the rapid development of commercial
enterprise.
0163(604cOutbreak of the  
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019:4 Formation of the '

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  and Stock Brokers Association.
09314 Formation of the
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099:4 Equity Trading commences on  .
09954 All trading goes Electronic
09964 Depository comes in to existence
09994 FIIs participation- Globalization
=3334 Over 80/% trades in Demat form
=3304 Major stocks move to Rolling Sett
=3324 T+2 settlements in all stocks
=3324 Demutualization of exchanges
  àà à

The demand for long-term memory capital in India comes predominantly from private sector
manufacturing industries and agriculture and from the government largely for the purpose of economic
development. As the central and state governments are investing not only on economic overheads like transport,
irrigation and power development but also on basic industries and sometimes even in consumer goods industries,
they require substantial sums from the capital market.
The supply of funds for the capital market in India comes largely from individual savers, corporate
savings, banks, insurance companies specialized financing agencies and the government. Among the institutions,
we may refer to the following:

(a) Commercial banks are important investors, but are largely interested in govt. securities and, to a small extent,
debentures of companies;
(b) LIC and GIC are of growing importance in the Indian capital market, though their major interest is in
government securities;
(c) Provident funds constitute a major medium of savings but their investment too are mostly in govt. securities;
and
(d) Special institutions set up since independence, viz , IFCI, ICICI, IDBI, UTI, etc. ±generally called
development financial institutions (DFIs) ±aim at supplying long term capital to the private sector.
(e) There are financial intermediaries in the capital market, such as merchant bankers, mutual funds leasing
companies etc. which help in mobilizing savings and supplying funds to investors.

Like all markets, this capital market is also composed of those who demand funds (borrowers) and those
who supply funds (lenders).an ideal capital attempts to provide adequate capital at reasonable rate of return for
any business which offers a prospective yield high enough to make borrowing worthwhile.

The capital market is broadly divided into two the gilt-edged market and the industrial securities market.
The gilt-edged market refers to the market for government and semi govt. securities, backed by the RBI. The
securities traded in this market are stable in value and are much sought after by banks and other institutions.

The industrial securities market refers to the market for shares and debentures of old and new companies.
This market is further divided into the new issue market and old capital market meaning the stock exchange. The
new issue market ±often referred to as primary market- refers to raising of new capital in the form of shares and
debentures whereas the old issue market ±commonly known as stock exchange or stock market-deals with
securities already issued by the companies. It is also known as the secondary market. Both markets are equally
important, but often the issue market IS MUCH MORE IMPORTANT from the point of view of economic
growth.

DFIs supply funds for investment: financial intermediaries like merchant bankers help the corporate
sector to raise funds in the capital market.

Soon after independence, the govt. of India set up a series of financial institutions to be of special help to
the private sector industries. " cwas the first of these institutions (1948).it was followed by SFCs (set up by
state govt. with cooperation of RBI & other banks) to provide long term finance to small and medium industries.
  c+0955,>cc+096:,c?cc+096:, followed soon after.% was set up in 1956 to mobilize individual
savings and to invest part of savings in the capital market.
   à



In the recent years, mutual funds are the most important among newer capital market institutions.
Several public sector banks and financial institutions have set up mutual funds on a tax- exempt basis.
Their main function is to mobilize the savings of general people & invest them in stock market securities.

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In the 1990s MFs found it hard to attract investors, the competition for funds was hotting up from
banks and the government was offering 14% interest on medium term securities, banks-12%, HDFC-
14%, IDBI-15.75%.

Under these conditions, it was difficult for mutual funds to rival such high yields on debt
instruments. They also found it hard to meet high expectations of investors who were yet to break out of
the get-rich-quick syndrome. Accordingly, the first wave of mutual funds failed.

During 1998-99 and 1999-00, however the mutual fund sector registered significant growth.
Economic conditions were good; stock exchanges were booming and the govt. had given tax concessions.
All these help in the return of faith of people in mutual funds.

The revival of mutual funds since 1995-96 was due to entry of corporate majors- TATA, BIRLA
and RELIANCE & SBI. Many other followed with products designed for investor specific need. Investors
left the banking system and flocked to mutual fund.


 

 



   

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% Returns
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DBS Chola Midcap Fund- Growth 20.35 125.68 9.46 18.81 25.62
Reliance Pharma Fund- Growth 21.55 104.29 25.47 30.15 31.66
DSP BlackRock Micro Cap Fund- Regular-Growth 27.15 102.03 NA NA 17.13
DBS Chola Opportunities Fund- Cumulative 8.71 95.33 10.82 20.71 11.7
DBS Chola Taxsaver Fund- Growth 9.39 90.76 0.43 NA 8.41


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Different mutual fund schemes are exposed to different levels of risk and investors should know the level
of risks associated with these schemes before investing. The graphical representation here under provides
a clear picture of the relationship between mutual funds and levels of risk associated with these funds:


 
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In modern capitalist economy, almost all commodities are produced on a large scale, and large
scale production means large scale capital. The public firms issues stocks and bonds and enable those
with surplus funds to invest them profitability in them.

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The first organized stock exchange in India was started in Bombay when the Native Share Stock Brokers¶
Association known as Bombay stock exchange (BSE) was formed by the brokers in Bombay.BSE was
Asia¶s oldest stock exchange. In 1894 Ahmadabad stock exchange was started to deal in the shares of
textile miles there the Calcutta stock exchange was started in 1908 to deal in shares of plantation and jute
miles besides these there were a number of unorganized and unrecognized exchanges known as KERB
markets. There were also illegal DABBA markets in which stock and shares also bought and sold
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The functioning of stock exchanges in India has shown many weaknesses, lack of transparency. to
counter these problems and regulate capital market the government of India set up the SECURITIES
AND EXCHANGE BOARD OF INDIA in 1988.SEBI was a non statutory body but in January 1992 it
was made a statutory body. SEBI, in consultation with govt. of India has taken a lot of steps to introduce
improved practices and greater transparency for the interest of the investing public and healthy
development of capital markets SEBI has advised stock exchanges to amend the listing agreements to
ensure the listed companies furnishes annual statements to the stock exchanges All the guidelines and
regulatory measures of capital issues are meant to promote healthy and efficient functioning of the issue
market In January 1995 the government amended SEBI ACT 1992, so as to arm SEBI with additional
powers for ensuring the orderly development of capital market and to enhance its ability to protect the
interest of investors. It was thought that SEBI has all necessary powers to control the capital market on
one hand and effectively protect interest of the shareholders on the other. But it has failed miserably to
prevent a small by scams like HARSHAD MEHTA scam.


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S&P CNX NIFTY 5393.90 0.28 0.77 2.21 23.78
CNX NIFTY JUNIOR 11535.50 0.50 1.17 3.92 35.73
S&P CNZ DEFTY 3995.70 0.13 0.73 1.45 27.01
BANK NIFTY 10013.45 0.81 2.99 4 32.53
CNX MIDCAP 8394.90 0.54 1.12 4.38 38.23
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Group Advances Advances% Declines Decline % Unchanged Unchanged% Total
All
BSE 200 125 62.50 74 37.00 1 0.50 200
Others 1316 51.81 1102 43.39 122 4.80 2540
BSE 30 17 56.67 13 43.33 0 0.00 30
BSE 500 288 57.60 208 41.60 4 0.80 500
BSE 100 65 65.00 35 35.00 0 0.00 100

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rc Existence of unorganized capital market

rc Absence of integration

rc Diversity in money rates of interest

rc Seasonal stringency of money

rc Absence of bill market

rc Highly volatile call money market

rc Absence of a well organized banking system

rc Availability of credit instrument

rc Lack of transparency

rc Variety of manipulative practices

rc Institutional deficiencies
  à





USA has a very strong and developed capital market. Many other countries such as Germany have a very
powerful and firm banking sector but the capital market of Germany is not so strong. There is a very agile
financial market that is present in USA and is playing very important part in making and implementing
the policies of the government. If agile market in financial instrument were not present, the govt. will not
be able to open market operations.
The US capital market, the largest in the world, is daunting in size and complexity. However,
using Capital Flow Analysis and Federal Reserve National Flow of Funds Accounts, we can describe the
broad outlines of the market.
In 2004, the American capital market was made up of seven major sectors that traded six main
categories of securitized instruments as follow:

 
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Households 36.6 Corporate equities 30.5
Fund managers 16.0 Agency securities & mortgages 29.7
Bankers and brokers 14.6 Fund shares 12.9
Corporate managers 12.9 Corporate bonds 12.8
Foreign investors 9.1 Treasuries and open market 10.2
Government official 5.4 Municipal securities 3.6
Insurance executives 5.2
Total US$ trillion 101.1 Total US$ trillions 56.3
 CAPITAL MARKET OF USA

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US treasury Notes 2-10 years Government Very active

Bonds 30 years Government Very Active

Corporate Bonds 2-30 years Financial & Business Active

Firms
Municipal Bonds 2-30 years State & Local govt. Active

Debentures 2-30 years Federal National Loan Active

Association

The list of stock exchanges in USA in given below:

½c New York Stock Exchanges

½c NASDAQ
½c Philadelphia
½c Boston Stock Exchanges
½c National Stock Exchanges
½c American Stock Exchanges
½c Chicago Stock Exchanges
½c New York Board of Trade
½c NYSE Arca

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The New York stock exchange is the largest stock exchange in the world. It is operated by NYSE
Euro next (it is the company that is formed by all the companies listed in the NYSE that came into
existence in April 2007) the CEO of the company is Duncan L. Niederauer.

Its origin started on may 1792, when 24 stock brokers signed the buttonwood agreement. It was
renamed NEW YORK STOCK AND EXCHANGE BOARD on March 1817. The first president was
Anthony Stockholm

Its composite index was created with a base value of 50 points and base year as 1965 after a gap
of 38 years the base value was 5000 points and the base year was 2005.
    àà 
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It is an organization of USA government which regulates all the stock exchanges mentioned
above. The primary responsibility of this commission is to enforce all the securities laws of investors and
industries. It was investors and industries. It was created by SECURITIES EXCHANGE ACT; 1934. This
act is also called FEDERAL SECURITIES ACT.

The main motive of the commission is to increase public faith in the capital markets by disclosure
of information about public securities offerings.

This commission is divided in several offices. They are:

½c The Office of General Counsel

½c The Office of the Chief Accountant
½c The Office of Compliance, Inspections and Examinations
½c The Office of International Affairs

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1 Corporate equities 17.2 30.5
2 Agency Securities & Mortgages 16.7 29.7
3 Fund Shares 7.3 12.9
4 Corporate Bonds 7.2 12.8
5 Treasuries and open market 5.7 10.2
6 Municipal Securities 2.0 3.6
Total market value of these categories 56.3 100.0
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$ ccapital market of India is very vulnerable. The political state of USA is very stable as
India has been politically instable in the past but it compared to the India and trading there is done not
is a little politically stable now-a-days.the political on speculations but on hard and proven facts. They
instability of the country has a very strong impact don¶t invest on feelings as we Indian investors do.
on the capital market. The share market of India It is a well known fact that the political factors play
changes as the political changes took place. an important role in the capital market, but in USA
The sensex goes up and down with any kind of due to its strong democracy and almost 100%
small and big political news, like, If there is news employment the capital market. The investors there
that a particular political party has withdrawn its don¶t mix emotions with their professions so even
support from the ruling party, and then the capital if there is some kind of political disturbance that
market will go down with a bang. The capital doesn¶t show much impact on the capital market
market of India is too weak and is based on there.
speculations. The political stability of the country is
very important for the stability and growth of
capital market in India. The political imbalance or
balance of the country is the major factor in
deciding the capital market of India. The political
factors include:
· employment laws
· tax policy
· trade restrictions and tariffs
· political stability

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THE economical measures taken by the The economical factors of any country are very
government of India has a very strong relationship important for the capital market of that country and
with the capital market. Whenever the annual USA is no exception. For example, the great
budget is announced the capital market goes up and depression of 1931, The USA stock market crash
down with the economical policies of the on October 29, 1959. It is also known as BLACK
government .If the policies are supportive to the TUESDAY. This crash led to huge loss for
companies then the capital market takes it investors and the capital market was on its knees.
positively and if there is any other policy Thus the economical factors are very important and
that is not supportive and it is not welcomed then unavoidable factor. It will be suicidal to overlook
the capital market goes down. Like, in the case of the various economical factors like inflation, GDP,
allocation of 3-G spectrum, those companies income tax structure etc.
that got the license for 3-G, they witnessed sharp
growth in their share values so the economic
policies play a major part in the growth and
decline of the capital market and again if there is
relaxation on any kind of taxes on items of
automobile industry then the share of automobile
sector goes up and virtually strengthen the capital
market .The economical factors include:
· inflation rate
· economic growth
· exchange rates
· interest rates
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India is a country of unity in diversity .India is
socially rich but the capital market is not very
attached with the social factors .Yes, there is some
relation between the social factors with the capital
market. If there is any big social factor then to
some extent it affects the capital market but small
social factors don¶t impact at all. Like, there was
opposition of reliance fresh in many cities and
many stores were closed. The share prices of the
reliance fresh went down but the impact was on
and individual firm there was not much impact on
the capital market on a whole the social factors
have not much of impact on the capital market in
India. The social factors include:
· emphasis on safety
· career attitudes
· population growth rate
· age distribution
· health consciousness
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Social factors almost don¶t affect the capital market
in the USA. Because, the country is very rigid in its
social roots. They are very less emotionally
attached to each other especially in terms of
business. The investors are least bothered about the
social issues that prevail in their surroundings.
Their social system is of that kind that it is too
difficult to disturb the capital market there. Their
social pattern is very much developed. Factors like
emphasis on safety, health consciousness, career
attitude, population growth rate, age distribution
etc. doesn¶t affect them at all.
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The technological factors have not that much effect
on the capital market. India is technological
backward country. Same as social factors,
technological factor can have an effect on an
individual form but it cannot have a big impact on a
whole of capital market. The Bajaj got a patent on
its dts-i technology, and launched it in its new bike
but it does not effect on capital market. The
technological change in India is always on a lower
basis and it doesn¶t effect on country as a whole.
The technological factors include:
· R&D activity
· technology incentives
· rate of technological change
· automation
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USA is a technologically developed country and
the companies spend lot of money on the R& D of
any product. They don¶t bother about the cost
incurring on it. And the investors there are very
active in technological changes. Any new
technological improvement in the industry will see
a growth in the capital market. The rate of change
of technology is very swift in USA, so it creates a
major wave in the market if there is automation.
Like the introduction of the I pod,
it changed the music industry in the USA, and
virtually its impact was seen on its capital market
to, as the trading in music company increased.
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Initially The environmental factors don¶t play a
vital role in the capital market. But the time has
changed and people are more eco-friendly. This is
really bothering them that if any firm or industry is
environment friendly or not. An increasing number
of people, investors, corporate executives are
paying importance to these facts, the capital
markets still see the environment as a Liability.
They belie that it is of no use for their strategy. The
environmental performance is even under-valued
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Legal factors are one of the most important factors
that affect the capital market. It encourages or
discourages the investors depending upon the
nature of law passed. Like after doom of AIG,
LEHMAN BROTHERS, and the USA govt.
provided them funds and passed a new law. This
encouraged the investors to regain faith in the
capital market and the investment was increased.
The legal system of any country can be a huge
factor in its improvement of primary and secondary
by the markets. market.
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Legal factors play an important role in the
development and sustain the capital market. Legal
issues relating to any industry or firm decides the
fate of the capital market. If the govt. of India or
the parliament introduces a new law that can affect
the running of the industry then the industry will be
demotivated and this demonization will lead to the
demonization of the investors and will result in the
fall of capital market. Like after the Hardhat Mehta
scam, new rules and regulations were introduced
like PAN card was made necessary for trading, if
any investor was investing too much money in a
small firm, then the investors were questioned, etc.
These regulations were meant to maintain
transparency in the capital market, but at that time,
investment was discouraged. Legal factors are
necessary for the improvement and stability of the
capital market.
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rc In India the investment is done on the basis of emotions and speculations but in USA the business
is much more practical and information driven.c

rc USA investors are very much risk taking and Indian investors tend to keep low risk.

rc The US capital market is much more regulated and transparent than the capital market in India.

rc The governing body of capital market of both the countries is trying to regulate it with much
more efficiency but the US SEC is more efficient and has more powers in compare to SEBI.

rc Here in India people still feels it is a gamble to invest the money in the capital market because
apart from big firms the retail investors aren¶t well equipped with the ample knowledge of the
market. On the contrary the retail investors in the US are willing to take risk investment rate is
highest in that country.

rc Also the government of the USA provides full monetary support to the companies and investors
in their country in case of nay big venture; where as in India capital market lacks government
support.

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½c www.financeindia.com
½c www.wikipedia.com
½c www.capitalmarket.com
½c www.scribd.com
½c www.capital-flow-analysis.com
½c www.appuonline.com

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