The market where investment funds like bonds, equities and mortgages are

traded is known as the capital market. 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 short or medium term maturity periods
are dealt in the money market whereas the financial instruments that have long
maturity periods are dealt in the 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.

INDIAN CAPITAL MARKET

The Indian Capital Market is one of the oldest capital markets in Asia which
evolved around 200 years ago.

Chronology of the Indian capital markets

1830s: Trading of corporate shares and stocks in Bank and cotton Presses in
Bombay.
1850s: Sharp increase in the capital market brokers owing to the rapid
development of commercial enterprise.
1860-61: Outbreak of the American Civil War and ' Share Mania ' in India.
1894: Formation of the Ahmadabad Shares and Stock Brokers Association .
1908: Formation of the Calcutta Stock Exchange Association.
The pattern of growth in the Indian capital markets in the post independence
regime can be analyzed from the following graphs.

From the above graph we find that the number of stock exchanges in India
increased at a crawling pace till 1980 but witnessed a sharp rise thereafter till
1995.

The following diagram shows the trend in the no. of listed companies
participating in the Indian Capital Market . Here again we register a sharp rise
after 1980. the number of stocks issued by the listed companies also show a
similar trend.
Trading Pattern in the Indian Capital Market

There are mainly two types of transactions that are carried out in the Indian
Capital Market, one is the spot delivery transactions and the other is the
forward delivery transactions. The role of the broker in the Indian Capital
Market is to facilitate the purchase or sale of securities and earn commission on
each transaction.

National Stock Exchange

To inject an international standard to the Indian Stock Market the National Stock
Exchange was started in 1992 by the Industrial Development Bank of India,
Industrial Credit and Investment Corporation of India, Industrial Finance
Corporation in India, all Insurance Corporations and the selected commercial
banks. The trading members and the participants constitute the players in the
national Stock Exchange.

The following are the advantages of the National Stock Exchange over the
traditional exchanges:

• The NSE basically integrates the stock market trading network across the
nation.

• The investors have the freedom to trade from any part of the nation at the
same price.

• Greater operational efficiency and informational efficiency can wipe out

the delays in communication, late payments and the malpractices that are
common in the traditional trading grounds.

For more details on the Indian Stock Exchange the sites that can be viewed are
capitalmarket.com, indiamart.com, yeahindia.com, adb.org, mayin.org etc.

EMERGING CAPITAL MARKETS

Emerging Capital Markets are financial markets that reside in the low or
middle income economies or where the ratio of investable market capitalization
to GNP is low. Such parameters to classify the financial market are set by the
International Finance Corporation.

Based on the above two criteria the bond market of Hong Kong and Singapore
are classified as the Emerging Capital Markets . The emerging capital market
nations have a large population size but a very low share of the world GNP . Out
of 155 of the Emerging Market Nations only 81 have equity markets. Although
the world equity market has grown from below $3.0 trillion in 1980 to above $31
trillion in 1999, the emerging capital market economies have grown only by
12.5%. the bond market capitalization relative GDP is also very low for the
Emerging Capital Markets compared to the Developed Markets.

The emerging capital markets are characterized by derivative markets that

are small but organised. There are organized exchanges where both options
and futures contracts are traded for agricultural products, metals , local
foreign currency and interest rate products. </

The Emerging Capital Markets are segmented from the rest of the world . This
implies that different interest rates exist for the same level of risk.

The net private capital flows to the emerging capital markets reached 3.5% of
GDP in 1995, remained strong till 1996 but witnessed a sharp fall by 1997.

According to the statistics of the Bank for International Settlements the

emerging capital markets have grown by 3% to 5%of the world market. It has
been observed that about 60% of the emerging capital markets resided in Asia ,
21% in Latin America and 19% in Eastern Europe, Middle East and Africa.

Although the marginal propensity to save is very high for East Asian countries,
the bond market is not fully developed. The local bond market as a percentage of
GDP is about 30-50% for the countries like Malaysia, Korea Philippines and
India. This ratio is below 10% in Hong Kong, Thailand, China and Indonesia.
Due to the absence of any yield curve in the emerging debt markets, there is lack
of liquidity in these markets.
As far as the equity market is concerned, the IFC has listed 7 countries which
have a market capitalization below $100 million. China, Taiwan and Korea are
the largest emerging equity markets. Although the size of the emerging equity
market is very small, more number of domestic companies participate in these
markets as compared to the equity markets of the developed countries.

THE CAPITAL MARKET REPORT

The Capital Market Report is prepared by the capital market analysts and are
of various types. They are the financial statements of a company's performance
in the capital market. The are four different kinds of capital market reports.
They are 10-K Reports, 10-Q Reports, Form 8-K Reports and the Proxy
Statements . Each of these reports may be discussed in detail under the
following heads:

• 10-K Reports

The companies that are publicly traded are supposed to maintain the 10-K report
each year. This is a kind of annual report of the company that contains
information of the company's business,finances and management . The type
of capital market report also inform about the bylaws of the company , other
legal documents and the lawsuits that the company may have a hand in. If one is
keen on learning about anything about the company that is not mentioned in the
annual report may find them in the 10-K Reports. </

• 10-Q Capital Market Reports or the Quarterly Reports

The quarterly reports are nothing but the abridged forms of the annual reports.
They are issued at an interval of three months. They consist of financial
statements and list the material events that have occurred in the company. By
material event we mean any stock split or acquisition.

• Form 8 -K

The companies that are publicly traded are required to maintain the Form 8-K
where they record any material event that might have affected the financial
status of the company. The material events that occur include stock splits,
mergers and acquisitions, management changes and the secondary stock
offerings . Although such informations would be finally filed in the 10-K Report,
even then the 8-K is easier to access when one needs to know about these
events.

• Proxy Statements

Each year the publicly traded companies call a meeting where they discuss the
issues like company business situation. The shareholders nominate the Board of
Directors by way of votes. Before such a meeting is conducted the company
distributes a proxy statement to the shareholders. This proxy statement consists
of business issues that need to be discussed in the meeting and a ballot for
voting for the purpose of forming the new Board of directors. The Proxy
Statement also gives authority to someone in the management team to vote on
his behalf.

CAPITAL MARKET ANALYST

The Capital Market Analyst is required to have extensive knowledge of

finances , risk management products and financial markets . The capital
market analyst should have strong analytical and presentation skill. He should
also be capable of negotiating.

The following is the list of functions by the capital market analyst:

• The capital market analyst is supposed to assist his clients in the different
capital market transactions and financing structures.

• The capital market analyst is also responsible for assessing the structures
and the financial products.

• The capital market analyst analyzes financing and the financial risk
management proposals.

• The capital market analyst negotiates the finance related agreements.

• The capital market analyst manages the bank relationship.

• The capital market analyst analyzes the financial risk management

products which includes the derivatives and thereby keeps the financial market
under close watch.

• The capital market analyst assists in projects and prepares presentations.

• The capital market analyst should be skilled in collecting and documenting

the business requirements.

• The capital market analyst should be skilled in creating process and data
flow maps and diagrams.

The capital market analyst should possess knowledge in the following areas of
the global capital market :

• Trading

• Settlements

• Custody
 • Compliance

• Risk

• OTC derivatives

• Finance

• Prime Brokerage

The role of the capital market analyst is also to develop capital market reports
and recommendations on particular kinds of stocks. They study the company
informations and based on them they formulate financial models . Such models
are used to forecast the future trends . On the basis of such trend the capital
market analyst decide on whether the specified stock should be bought or sold.
The recommendations of the capital market analysts differ across the different
firms. The analyst sometimes is caught between the employing company and the
company whose stock they are studying.

The capital market analyst is also responsible for issuing the earnings
estimates for companies. The earnings estimate is basically the estimate of the
earnings per share . The earnings estimate has gained prominence in Wall
Street. The companies that overshoot their estimates experience rising stock
prices whereas in the reverse case the stock prices are seen to be taking a
downturn.

The reports and the earnings estimates have conflicting objectives. The analysts
are instructed by the companies to keep their earnings estimate lower than the
figure that the company actually desires to report. Hence in most times overshoot
their expectations which signals the less knowledgeable investors to buy. These
are known as the earnings whispers . The earnings whispers are created
using a number of methods.
For more details on the capital market analyst the websites worth viewing are
investorguide.com, eurograd.org, capitalmarket.com etc.

CAPITAL MARKET THEORY

In studying the capital market theory we deal with issues like the role of the
capital markets, the major capital markets in the US, the initial public offerings
and the role of the venture capital in capital markets, financial innovation and
markets in derivative instruments, the role of securities and the exchange
commission, the role of the federal reserve system, role of the US Treasury and
the regulatory requirements on the capital market.

The market where investment funds like bonds, equities and mortgages are
traded is known as the capital market . The financial instruments that have
short or medium term maturity periods are dealt in the money market whereas
the financial instruments that have long maturity periods are dealt in the capital
market.

The issues that have been mentioned above to explain the capital market theory
may be discussed under the following heads:

Role of the Capital Market

The main function of the capital market is to channelize investments from the
investors who have surplus funds to the investors who have deficit funds. 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. The money market instruments that are traded in the capital
market are Treasury Bills, federal agency securities, federal funds, negotiable
certificates of deposits, commercial paper, bankers' acceptance, repurchase
agreements, Eurocurrency deposits, Eurocurrency loans, futures and options.

Capital market in the US

The capital market in the US is very advanced and uses very modern
technologies in its operation. The capital market instruments are either traded in
the Over-the – Counter markets or in the exchanges. The New York Stock
Exchange is the oldest and the most prominent exchange in the US capital
Market.

Initial Public Offering and the role of Venture Capital in the capital market

The companies raise their long term capital through the issue of shares that are
floated in the capital market in the form of Initial Public Offering. The venture
capital are the funds that are raised in the capital market via the specialized
operators. This is also a very important source of finance for the innovative
companies.

Markets in Derivatives

The derivatives like the options, futures, credit derivatives etc are traded in the
capital markets.

Role of the Federal Reserve System and the US Treasury

The Federal Reserve System plays an important role in the capital market by
providing liquidity and managing the credit conditions in the US financial system.
The US Treasury operations seal the gap between the cash inflow and outflow,
thereby, providing liquidity to the US capital Market.

CAPITAL MARKET INVESTMENT

Capital market investment takes place through the bond market and the stock
market . The capital marke t is basically the financial pool in which different
companies as well as the government can raise long term funds.

Capital market investment that takes place through the bond and the stock
market may be elucidated in the following heads.

Capital market investments in the stock market

The stock market is basically the trading ground capital market investment in
the following:

• company stocks

• derivatives

• other securities

The capital market investments in the stock market take place by

• small individual stock investors

• large hedge fund traders.

The capital market investments can occur either in

• The physical market by a method known as the open outcry. The New
York Stock Exchange is a physical market or
 • Trading can also occur in the virtual exchange where trading is done in
the computer network. NASDAQ is a virtual exchange.

Investments in the stock market helps the large companies to raise their long
term capital . The investors in the stock market have the liberty to buy or sell the
stock that they are holding at their own discretion unlike the case of government
securities , bonds or real estate . The stock exchanges basically function as
the clearing house for such liquid transactions. The capital market investments
in the stock market are also done through the derivative instruments like the
stock options and the stock futures. The derivatives are the financial
instruments whose value is determined by the price of the underlying asset. </

Capital Market Investments in the Bond Market

The bond market is a financial market where the participants buy and sell debt
securities . The bond market is also differently known as the debt, credit or fixed
income market. There are different types of bond markets based on the different
types of bonds that are traded. They are :

• corporate

• government and agency >

• municipal

• bonds backed by mortgages , assets

• Collateralized Debt Obligation .

The bonds , except for the corporate bonds do not have formal exchanges but
are traded over-the- counter . Individual investors are attracted to the bond
market and make investments through the bond funds, closed-end-funds or
the unit investment trusts . The net inflows of total bond funds increased by
97% in 2006 than that in 2005. Another way of investing directly in the bond
issue is the Exchange-traded-funds .

The capital market investment in the bond market is done by

• institutional investors

• governments, traders and

• individuals.

THE GLOBAL CAPITAL MARKET

The Global Capital Market deals with mergers and acquisitions, strategic equity
partnering, management buyout services ,acquisition search services, corporate
debt and equity and financial restructuring. Each of these terms may be
explained under the following heads:

Mergers and Acquisitions

When the shareholder of a successful business is deciding on the sale of his

business, then considering his operating experience is not enough. For making
such decisions expertise is required. A balanced approach need to be taken in
making such decisions and the Global Capital Market offers invaluable
suggestions in the case of such mergers and acquisitions.

Seller Representation

The process involving the sale of a business is very complex and dynamic .The
Global Capital Market provides an alternative that would be most profitable. This
is done after a thorough evaluation of the existing business. The Global Capital
Market provides the best mean that could maximize the value in the selling
process.

Strategic Equity Partnering

There are participants in the Global Capital Market who do not want to sell their
business. In such cases the Global Capital Market offers Strategic Equity
Partnership . By this process the business owner can gain liquidity and at the
same time can have sufficient control over the business operation. The investor
can enjoy quality management accompanied by capital appreciation. The Global
Capital Market , in this way, develops partnerships that are profitable and at the
same time profitable.

Management Buyout Services

Management is of key importance in running a company successful. The Global

Capital Market Helps the management to fulfill their dreams of acquiring the
target companies. The following services are provided by the the Global Capital
market in order to fulfill this goal.

• Creation of close team support with other professional advisors for the
purpose of coordination of the acquisition strategy

• Negotiation and structuring the deals

• Designing and Sourcing the necessary finances in order to close the deal.

• For long term success post transaction capital and support is provided.

Acquisition Search Services

The Global Capital Marke t has a huge database which help to reduce the
search cost in the matters of acquisition. With the help of the large network of
relationships the Global capital Market can help in making the right deal at the
right price.

Corporate Debt and Equity

The Global Capital Market helps in well structured and well priced financing
raised through the global equity and debts.

Financial Restructuring

The Global Capital Market Can help the creditors, debtors and equity holders
in the following ways:

• By renegotiating the existing debt and loan agreements

• By raising additional debt and equity

• By divesting corporate assets

• By arranging mergers

• By negotiating workout plans with creditors

• By restructuring debt to match the cash generating potential

MARKET WATCH

It is crucial for investors to be up-to-date with market trends, sentiments and

fundamentals. The phrase Market watch, or watching the markets, means
keeping in touch with fast-changing market trends in order to make informed and
calculated investment decisions.

The Main Markets

The main investment markets are:

• Stock market: One can exchange the shares of companies listed on
various bourses as well as other securities and derivatives at a specified price.

• Profits are made by buying shares at low prices and selling them at higher
prices. Some of the world’s leading stock exchanges, where one can sell shares
and their derivatives, are the National Association of Securities Dealers
Automated Quotations (NASDAQ), Chicago Stock Exchange (CSE), London
Stock Exchange (LSE) and Bombay Stock Exchange (BSE). Another way of
earnings profits from this market is through dividends, which is part of the
income that a company generates and passes to its shareholders.

• Forex market: The foreign exchange (forex) market allows investors to

speculate and profit from changes in the exchange rates of currency pairs. It is
the largest financial market in the world, with an average daily turnover of $3.2
trillion. Average daily trading volume is more than 1.9 trillion. The forex market
has no centralized trade location.

• Commodities market: In this market, investors can exchange contracts to

buy or sell raw or primary products at a specific price. Some of the most
commonly traded commodities are gold, silver, crude oil, coffee and cotton.

• Bonds market: This market issues some of the most common financial
instruments, such as bonds, treasury bills, notes and certificates of deposit
 (CDs). They are like debt taken by governments, financial intermediaries and
companies to raise capital. In this market, investors (debt holders) earn regular
income in the form of interest payments and receive the entire principal amount
on maturity.

What does Market Watch Involve?

Market watch involves gathering data points for making buy and sell decisions.
The sources of information include:

• Business news

• Real-time commentary

• Price charts

• Personal finance information

• Basic investment data

Biggest IPO in India's Capital market History

Is Anil Ambani the richest man of India or the world, a multi million dollar question?
The biggest ever Initial Public offer (IPO) in the history of India's capital market has
probably not only made Anil Ambani the richest man in India but also of the entire
world, a matter of great pride for India.

On conservative estimates, bankers to the Reliance Power issue will make more than Rs 180 crore from
overnight interest payments on the application money they have received in the IPO before refunds are
given to applicants who could not get their full intent fulfilled.

The refunds do not carry interest payments but banks parking the funds get some. However, investment
bankers say that a part of the profit from the application money is being used for bearing some costs such
as registrar fees or postage fees.

As per data collated by Hindustan Times, the application money collected under the three different
categories - qualified institutional bidders, high net worth individuals and retail investors would be to the tune
of Rs 112,063 crore. The issue had received bids for Rs 745,676 crore.

The company came out with 26 crore equity shares. Of this 3.2 crore was reserved for the promoters. The
net issued to the public was 22.8 crore shares. Of this, 30 per cent, or 6.84 crore shares, were reserved for
retail investors at the rate of Rs 430 per share. The actual issue size for the public was Rs 10,121 crore, not
counting the 3.2 crore shares subscribed to by the promoters.

"The issue has demonstrated the fact the Indian market has the ability to raise resources of any magnitude if
the company has right projects and the promoters have right background," said Uday Kotak executive vice-
chairman of Kotak Mahindra Bank.

"It also proves that the promoters need not cross over the Atlantic to raise money. Rather, investors from
across the Atlantic are willing to do that in search of good opportunities," he added, in a reference to US-
based funds across the Atlantic from Britain.

Although the call rate in the money market is currently hovering around 8 per cent, even at the rate of 6 per
cent, bankers would make Rs 18.4 crore per day on the money garnered but intended to be refunded
without interest payment.

And on an average basis this money lies with banks for around 10 days before they start giving refund to the
investors. This, in turn, translates into a floating income of around Rs 184 crore for the bankers as a whole.