Capital Market may be defined as a market dealing in medium and long-term funds.

It is
an institutional arrangement for borrowing medium and long-term funds and which
provides facilities for marketing and trading of securities. So it constitutes all long-term
borrowings from banks and financial institutions, borrowings from foreign markets and
raising of capital by issue various securities such as shares debentures, bonds, etc. In the
present chapter let us discuss about the market for trading of securities. The market where
securities are traded known as Securities market. It consists of two different segments
namely primary and secondary market. The primary market deals with new or fresh issue
of securities and is, therefore, also known as new issue market; whereas the secondary
market provides a place for purchase and sale of existing securities and is often termed as
stock market or stock exchange.

Capital market can be classified as primary and secondary market. The fresh issue of
securities takes place in primary market and trading among investors takes place in
secondary market. Primary market is also known as new issues market. Equity investors
first enter capital market though investment in primary market. In India, common
investors participating in the equity primary market is massive. The number of companies
offering equity through primary markets increased continuously.

The Indian capital market saw good growth between May 2003 and January 2004 on the
back of good GDP growth, encouraging corporate results, the Government's intent to
invest heavily in infrastructure, a strong Rupee, and mounting forex reserves. The market
today is range bound and not much seems to be happening.

While this is the story of the equity market, a quick look at the debt market shows that
huge liquidity and low credit off take kept interest rates down most of the period.

There was mild volatility whenever there was news about U.S. interest rates. There has
been higher volatility more recently because of two things concerns over fiscal deficit
and inflation and rising interest rates in the key world economies. There could be
inflationary pressures and rising trade deficits, particularly for the developing countries.

As for the emerging scenario India's GDP growth promises to be better than what it is
now. Indian corporates may continue to show good growth and robustness. The monsoon
is expected to be good as also the agriculture growth. The Rupee seems to be holding
fine while the forex reserves remain comfortable. The balance sheets of Indian banks are
getting stronger. The markets now seem to be waiting for the Government's moves on the
economic front. The equity markets are bound to see a big rally. If this does not happen
then the markets could see a choppy period ahead. On the debt side, there are indications
that interest rates might rise.

It is now fairly well established that making investments only in one channel does not
yield the desired results. Diversification and asset allocation is the new mantra. A person
needs to diversify to optimize returns. This will involve putting money in equities
choosing the type of equity fund that most suits the risk/return profile and also some
money in debt funds. The combination of equity and debt will depend upon the
following.

Factors: risk orientation, quantum of return expected, time horizon and objective of
making the investment.

Products and Participants:
Financial markets facilitate the reallocation of savings from savers to entrepreneurs.
Savings are linked to investments by a variety of intermediaries through a range of
complex financial products called securities which is defined in the Securities
Contracts (Regulation) Act, 1956 to include shares, bonds, scrips, stocks or other
marketable securities of like nature in or of any incorporate company or body corporate,
government securities, derivatives of securities, units of collective investment scheme,
interest and rights in securities, security receipt or any other instruments so declared by
the central government.