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INTRODUCTION
Classification:
The capital market in India includes the following
institutions (i.e., supply of funds tor capital markets
comes largely from these); (i) Commercial Banks; (ii)
Insurance Companies (LIC and GIC); (iii) Specialised
financial institutions like IFCI, IDBI, ICICI, SIDCS, SFCS,
UTI etc.; (iv) Provident Fund Societies; (v) Merchant
Banking Agencies; (vi) Credit Guarantee Corporations.
Individuals who invest directly on their own in
securities are also suppliers of fund to the capital
market.
Thus, like all the markets the capital market is also
composed of those who demand funds (borrowers)
and those who supply funds (lenders). An ideal capital
market at tempts to provide adequate capital at
reasonable rate of return for any business, or
industrial proposition which offers a prospective high
yield to make borrowing worthwhile.
ADVERTISEMENTS:
The Indian capital market is divided into gilt-edged
market and the industrial securities market. The gilt-
edged market refers to the market for government and
semi-government 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 issues
market and old capital market meaning the stock
exchange.
The new issue market refers to the raising of new
capital in the form of shares and debentures, whereas
the old capital market deals with securities already
issued by companies.
The capital market is also divided in primary capital
market and secondary capital market. The primary
market refers to the new issue market, which relates
to the issue of shares, preference shares, and
debentures of non-government public limited
companies and also to the realising of fresh capital by
government companies, and the issue of public sector
bonds.
The secondary market on the other hand is the market
for old and already issued securities. The secondary
capital market is composed of industrial security
market or the stock exchange in which industrial
securities are bought and sold and the gilt- edged
market in which the government and semi-
government securities are traded.
5. Technical Assistance :-
An important shortage faced by entrepreneurs in
developing countries is technical assistance. By offering
advisory services relating to preparation of feasibility
reports, identifying growth potential and training
entrepreneurs in project management, the financial
intermediaries in capital market play an important role.
6. Reliable Guide To Performance :-
The capital market serves as a reliable guide to the
performance and financial position of corporate, and
thereby promotes efficiency.
7. Proper Channelization Of Funds :-
The prevailing market price of a security and relative
yield are the guiding factors for the people to channelize
their funds in a particular company. This ensures
effective utilization of funds in the public interest.
8. Provision Of Variety Of Services :-
The financial institutions functioning in the capital
market provide a variety of services such as grant of long
term and medium term loans to entrepreneurs, provision
of underwriting facilities, assistance in promotion of
companies, participation in equity capital, giving expert
advice etc.
9. Development Of Backward Areas :-
Capital Markets provide funds for projects in backward
areas. This facilitates economic development of
backward areas. Long term funds are also provided for
development projects in backward and rural areas.
10. Foreign Capital :-
Capital markets makes possible to generate foreign
capital. Indian firms are able to generate capital funds
from overseas markets by way of bonds and other
securities. Government has liberalized Foreign Direct
Investment (FDI) in the country. This not only brings in
foreign capital but also foreign technology which is
important for economic development of the country.
11. Easy Liquidity :-
With the help of secondary market investors can sell off
their holdings and convert them into liquid cash.
Commercial banks also allow investors to withdraw their
deposits, as and when they are in need of funds.
Liquidity in bank
CNX Nifty Junior (Junior Nifty) is an index comprised
of the next rung of 50 most liquid stocks afterS&P
CNX Nifty. In
fact S&P CNX Nifty and Junior Nifty may be regarded as
a basket of 100 most liquid stocks in India.Stocks in
Junior Nifty are filtered on their liquidity characterized by
their impact cost and market valuerepresented bytheir
market capitalization. The stocks comprising S&P CNX
Nifty and Junior Nifty are mutually exclusive i.e. astock
willnever appear in both indexes at the same time. Junior
Nifty may also be considered an incubator for stocks
entering Nifty.PROFESSIONALLY MANAGED The index
is professionally managed by India Index Services and
Products Limited (IISL), which is India’s
firstspecialistcompany dedicated to providing investors
in Indian equity markets with Indexes and Index
services.IISL is a joint venture between two entities who
have immensely contributed to the Indian Capital Markets
- theNationalStock Exchange of India Limited (NSE),
India’s largest stock exchange and the Credit Rating
InformationServicesof India Limited (CRISIL), India’s
leading credit rating agency. IISL also has a consulting
and licensing agreementwithStandard & Poor’s
(S&P).Index Maintenance plays a crucial role in ensuring
stability of the Index as well as in meeting its objective
of being aconsistent benchmark of the equity markets.
IISL has constituted an Index Policy Committee (IPC),
which isinvolved informulating policies and guidelines
for managing the Indexes. The committee is a blend of
academics andmarketpractitioners – comprising of
eminent persons from the Mutual Fund industry,
Economists, National StockExchange,CRISIL and S&P to
ensure that indexes are constructed on sound principles.
The committee determines macropolicies,with respect to
construction and maintenance of indexes. The selection
criteria specified by the Index PolicyCommitteefor
various indexes are transparent and published by IISL.A
separate Index Maintenance Sub-Committee comprising
of officials of NSE, CRISIL and IISL takes all
decisionsonaddition/ deletion of companies in any Index.
The Index Maintenance Sub-committee ensures that Index
reviewandmaintenance is carried out in accordance with
the policies developed by IPC and includes:• Monitoring
and completing adjustments in a timely manner on
account of corporate actions•Reviewing according to laid
down criteriaIndex Reviews are normally carried out
every quarter. At the time of review, a Replacement Pool
comprisingcompanies that meet all criteria for candidacy
to the Index are analysed.
In banking, liquidity
is the ability to meet obligations when they come due
without incurring unacceptablelosses. Managing liquidity is
a daily process requiringbankersto monitor and project cash
flows to ensureadequate liquidity is maintained.
Maintaining a balance between short-term assets
and short-term liabilities iscritical. For an individual bank,
clients' deposits are its primaryliabilities(in the sense that the
bank is meant togive back all client deposits on demand),
whereas reserves and loans are its primaryassets(in the
sense thatthese loans are owed to the bank, not by the
bank). The investment portfolio represents a smaller
portion of assets, and serves as the primary source of
liquidity. Investment securities can be liquidated to satisfy
depositwithdrawals and increased loan demand. Banks have
several additional options for generating liquidity, such
asselling loans, borrowing from other banks, borrowing
from acentral bank, such as theUS Federal Reserve bank,and
raising additional capital. In a worst case scenario,
depositors may demand their funds when the bank
isunable to generate adequate cash without incurring substantial
financial losses. In severe cases, this may resultin abank run.
Most banks are subject to legally-mandated requirements
intended to help banks avoid aliquiditycrisis.Banks can
generally maintain as much liquidity as desired because
bank deposits are insured by governmentsin most
developed countries. A lack of liquidity can be remedied
by raising deposit rates and effectivelymarketing deposit
products. However, an important measure of a
bank's value and success is the cost of
liquidity. A bank can attract significant liquid funds, but
at what cost? Lower costs generate stronger profits,more
stability, and more confidence among depositors,
investors, and regulators.Funds management involves
estimating and satisfying liquidity needs in the most cost-
effective way possibleand without unduly sacrificing
income potential. Effective analysis and management
of liquidity requiresmanagement to measure the liquidity
position of the bank on an ongoing basis and to examine
how fundingrequirements are likely to evolve under
various scenarios, including adverse conditions. The
formality and sophistication of liquidity management
depends on the size and sophistication of the bank, aswell
as the nature and complexity of its activities. Regardless
of the bank, good management informationsystems,
strong analysis of funding requirements under alternative
scenarios, diversification of funding sources,and
contingency planning are crucial elements of strong
liquidity management. The adequacy of a bank's liquidity
will vary. In the same bank, at different times, similar
liquidity positions maybe adequate or inadequate
depending on anticipated or unexpected funding needs.
Likewise, a liquidity positionadequate for one bank may
be inadequate for another. Determining a bank's liquidity
adequacy requires ananalysis of the current liquidity
position, present and anticipated asset quality, present and
future earningscapacity, historical funding requirements,
anticipated future funding needs, and options for reducing
fundingneeds or obtaining additional funds.Purchasing
aputoption and entering into ashort saletransaction are the
two most common ways for traders toprofit when the
price of an underlying asset decreases, but the payoffs are
quite different. Even though both of these instruments
appreciate in value when the price of the underlying asset
decreases, the amount of loss andpain incurred by the
holder of each position when the price of the underlying
asset
increases
is drasticallydifferent.
A short sale transaction
consists of borrowing shares from a broker and selling
them on the market in thehope that the share price will
decrease and you'll be able to buy them back at a lower
price. (If you need arefresher on this subject, see our
Short Selling Tutorial
.) As you can see from the diagram below, a trader
whohas a short position in a stock will be severely
affected by a large price increase because the losses
becomelarger as the price of the underlying asset
increases. The reason why the short seller sustains such
large lossesis that he/she does have to return the borrowed
shares to the lender at some point, and when that happens,
theshort seller is obligated to buy the asset at the market
price, which is currently higher than where the shortseller
initially sold.In contrast, the purchase of a put option
allows an investor to benefit from a decrease in the price
of theunderlying asset, while also limiting the amount of
loss he/she may sustain. The purchaser of a put option
willpay a premium to have the right, but not
the obligation, to sell a specific number of shares at an
agreed uponstrike price. If the price rises dramatically, the
purchaser of the put option can choose to do nothing and
justlose the premium that he/she invested. This limited
amount of loss is the factor that can be very appealing
tonovice traders