Indian Capital Market

Market

Instruments

Intermediaries Regulator
SEBI

Primary

Secondary

Brokers Investment Bankers Stock Exchanges Underwriters Hybrid Debt

Equity

Players

CRA

Corporate Intermediaries

Individual

Banks/FI

FDI /FII

INTRODUCTION
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 shortterm funds takes place on other markets (e.g., the money market). The capital market includes the stock market (equity securities) and the bond market (debt). Financial regulators, such as the UK's Financial Services Authority (FSA) or the U.S. Securities and Exchange Commission (SEC), oversee the capital markets in their designated jurisdictions to ensure that investors are protected against fraud, among other duties. Capital markets may be classified as primary markets and secondary markets. In primary markets, new stock or bond issues are sold to investors via a mechanism known as underwriting. In the secondary markets, existing securities are sold and bought among investors or traders, usually on a securities exchange, over-the-counter, or elsewhere.

CAPITAL MARKETS IN DEVELOPING COUNTRIES: The term "emerging market" refers to the securities markets of a developing country and the use that country makes of international capital markets.

CAPITAL MARKET IN INDIA: Coming to Indian context, the term capital market refers to only stock markets as per the common man's ideology, but the capital markets have a much broader sense. Where as in global scenario, it consists of various markets such as: 1. Government securities market 2. Municipal bond market 3. Corporate debt market 4. Stock market 5. Depository receipts market 6. Mortagate and asset-backed securities market 7. Financial derivates market 8. Foreign exchange market

TYPES OF CAPITAL MARKET

PRIMARY MARKET
SECONDARY MARKET
What is meant by Secondary Market? : Secondary Market refers to a market where securities are traded after being initially offered to the public in the primary market and/or listed on the Stock Exchange. Majority of the trading is done in the secondary market. Secondary market comprises of equity markets and the debt markets The financial markets can broadly be divided into money and capital market. Money Market Capital Market

It is for short term Supplies funds for WC Instruments are T-bill, CM, etc Each single instrument is of large amount Central bank and Commercial banks are major.

Money Market Vs Capital Market

It is for long term Supplies funds for fixed capital requirement Instruments are shares, debentures, etc. Each single instrument is of small amount Development bank and insurance companies are major.

What is the difference between primary market & secondary market? : In the primary market, securities are offered to public for subscription for the purpose of raising capital or fund. Secondary market is an equity trading avenue in which already existing/preissued securities are traded amongst investors. Secondary market could be either auction or dealer market. While stock exchange is the part of an auction market
.

Role of Broker and Sub-broker in the Secondary Market A Broker is a member of a recognized stock exchange, who is permitted to do trades on the screen-based trading system of different stock exchanges. He is enrolled as a member with the concerned exchange and is registered with SEBI. A Sub Broker is a person who is registered with SEBI as such and is affiliated to a member of a recognized stock exchange
.

CAPITAL MARKET REFORMS IN INDIA

The 1990s have witnessed the emergence of the securities market as a major source of finance for trade and industry in India. A growing number of companies have been accessing the securities market rather than depending on loans from financial institutions / banks. The corporate sector is increasingly depending on external sources for meeting its funding requirements.

Disseminate information efficiently Enable quick valuation of financial instruments both equity and debt Provide insurance against market risk or price risk Enable wider participation Provide operational efficiency through -simplified transaction procedure - lowering settlement timings and - lowering transaction costs

Functions of a capital market

Capital Markets - Reforms

Each scam has brought in reforms - 1992 / 2001 Screen based Trading through NSE Capital adequacy norms stipulated Dematerialization of Shares - risks of fraudulent paper eliminated Entry of Foreign Investors Investor awareness programs Rolling settlements Inter-action between banking and exchanges

STRUCTURE OF INDIAN CAPITAL MARKET: In India, many of the above markets are not developed to the required extent, and some does not even exist. A capital market can provide huge impetus to the development of any economy .so, it can be said that the growth and sustainability of capital markets plays an important role towards the development of the economy. It is being observed that huge fluctuations are happening in Indian capital market in recent past, but with the help of proper mechanism, which is being observed in India and after examining various risk factors involved in capital markets, we attempt to say that the growth which has been observed in Indian capital market in recent past is a realty, but not a myth. In India the capital market consists of 1. Stock market 2. Bonds, convertible debentures and debt market 3. New issue market and merchant banking

ROLE OF CAPITAL MARKETS: As we know that capital markets play a vital role in Indian economy, the growth of capital markets will be helpful in raising the per-capita income of the individuals, decrease the levels of un-employment, and thus reducing the number of people who lie below the poverty line. With the increasing awareness in the people they start investing in capital markets with long-term orientations, which would provide capital inflows to the sectors requiring financial assistance. Any individual investor considers the following factors of risk while investing in the capital markets: 1. VOLATILITY RISK AND RISK OF CONTAGIONS: High volatality is the characteristic of any capital market, especially in emerging markets. They are immature and sometimes vulnerable to scandal. They often lack legal and judicial infrastructure to enforce the law. Accounting disclosure, trading and settlement practices may at times seem overly arbitrary and nave. 2. LIQUIDITY RISK: Many emerging markets are small and illiquid. Volumes of trade are quite low. This kind of thin trading often leads to higher costs because large transactions have a significant impact on the market. Thus, buyers of large blocks of shares may have to pay more to complete the transaction, and sellers may receive a lower price.

3. CLEARANCE AND SETTLEMENT RISK: Inadequate settlement

procedures still exist in many of the emerging markets. They lead to high FAIL rates. A Fail occurs when a trade fails to settle on the settlement date . 4. POLITICAL RISK: In most of the developing countries the political systems are less stable comparative to the developed countries. This scenario does not give the political system to concentrate more on the capital market happenings and restrict any kind of malfunctions or practices. 5. CURRENCY RISK: The trade in capital markets will be highly impacted by the fluctuations in the foreign exchange rates. The currencies of the emerging countries are not stable enough to compete with those of the developed countries. This leads towards unexpected losses for the investors in the markets. 6. LIMITED DISCLOSURE AND INSUFFICIENT LEGAL INFRASTRUCTURE: As it is already mentioned earlier that disclosure levels will not be up to the required extent in emerging markets, the investors will not have a bright picture of the company