CAPITAL

MARKET
 CAPITAL MARKET
 The market where investment
instruments like bonds, equities
and mortgages 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.
 The capital market offers both long term and
overnight 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.
 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

 Types of capital market
There are two types of capital
market:
 Primary market,
 Secondary market
 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.
 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.
 Features of Primary

Market
It Is Related With New Issues
 It Has No Particular Place
 It Has Various Methods Of Float Capital:
Following are the methods of raising capital
in the primary market:
i) Public Issue
ii) Offer For Sale
iii) Private Placement
iv) Right Issue
v) Electronic-Initial Public Offer
 It comes before Secondary Market
 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.
 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, their
are 24 stock exchange in India.
 Features of Secondary
Market
 It Creates Liquidity
 It Comes After Primary Market
 It Has A Particular Place
 It Encourage New Investments
 CAPITAL MARKET RISK
 Investment in long term
financial instruments is
accompanied by high capital
market risks. Since there are two
types of capital markets- the
stock market and the bond
market.
 So risks are present in both the

market.
Risk in the Stock Market
 Stock prices keep fluctuating
over a wide range unlike the bank
deposits or government bonds.
 The efficient market hypothesis

shows the effect of fundamental

factors in changing the price of
the stock market.
 The Efficient Market Hypothesis
shows that all price movements are
random whereas there are plenty
of studies that reflect the fact that
there is a specific trend in the stock
market prices over a period of
time.
 Research has shown that there are

certain psychological factors that

shape the stock market prices.
 Sometimes the market behaves
illogically to any economic news.
 The stock market prices can be diverted in
any direction in response to press
releases, rumors and mass panic.

 The stock market prices are also subject

to speculation. In the short run the stock
market prices may be very volatile due to
the occurrences of the fast market
changing events.
 Risk in the Bond Market
 Capital market risk in the bond
market arises due to interest rate
changes. There is an inverse
relationship existing between the
interest rate and the price of the
bond. Hence the bond prices are
sensitive to the monetary policy of
the country as well as economic
changes.
 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 Hamada 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 shows a similar trend:
 CAPITAL MARKET REPORT

 The Capital Market Report is

prepared by the capital market
analysts and is of various types.
 There are four different kinds
of capital market reports: >10-K
Reports,
>10-Q Reports,
>Form 8-K Reports,
>the Proxy Statements .
 10-K Reports
 This is a kind of annual report of the company that
contains information of the company's business,
finances and management.
 This informs us about the bylaws of the company,
other legal documents and the lawsuits that the
company may have a hand in.
10-Q Reports or the Quarterly Reports
 The quarterly reports are the abridged form 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.
 Form 8 –K Report
 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
Proxy Statements
 The 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.
 CAPITAL MARKET
INVESTMENT
 Capital market investment takes place
through the bond market and the stock
market.
 The capital market 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:
i) Company’s stocks
ii) Derivatives
iii) Other securities
 The capital market investments in the stock
market take place by:
1) Small individual stock investors
2) Large hedge fund traders.
 The capital market investments can occur
either in:
1) The physical market by a method known
as the open outcry.
 2) Trading can also occur in the virtual exchange where
trading is done in the computer network.
 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.
 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.
 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.
BY:-
Akansha

Singh