Capital Market

By: Prof Amarpreet Singh

bangaamar@hotmail.com

Introduction
Capital Market
Definition: Capital market is a market for long-term debt and equity shares. In this market, the capital funds comprising of both equity and debt are issued and traded. This also includes private placement sources of debt and equity as well as organized markets like stock exchanges. Capital market can be further divided into primary and secondary markets.

Example Stock Market, Bond Market etc

Need of Capital Market

Long Term Capital
Proper Channelization of funds Promotion of industrial growth

Functions of Capital Market

Wider Reach Operational Efficiency Valuation Dissemination of information

Significance, Role or Functions of Capital Market

Mobilization of Savings

Capital Formation
Provision of Investment Avenue Speed up Economic Growth and Development

Proper Regulation of Funds

Service Provision Continuous Availability of Fund

MAIN ELEMENTS

OF
CAPITAL MARMET

CAPITAL MARKET

THREE ELEMENTS OF CAPITAL MARKET

FINANCIAL ASSETS/INSTRUMENTS/SECURITIES FINANCIAL INTERMEDIARIES FINANCIAL MARKETS

CAPITAL MARKET

Types of Capital Market

Primary Market
Provides the channel for sale of new securities such as shares and

Debentures.
Issuing company or group receives cash proceeds from the sale, which

is then used to fund operations or expand the business. E.g. IPO( Initial public offering)

Secondary Market
The secondary market, also called aftermarket, is the financial market

where previously issued securities and financial instruments such as stocks, bonds, options and futures are bought and sold. E.g. NSE,BSE

Features of primary markets are:

This is the market for new long term equity capital.

The primary market is the market where the securities are sold for

the first time. Therefore it is also called the new issue market (NIM).
In a primary issue, the securities are issued by the company

directly to investors.
Primary issues are used by companies for the purpose of setting

up new business or for expanding or modernizing the existing business.

The primary market performs the crucial function of facilitating

capital formation in the economy.

Features of Secondary markets are:

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.
Comprises of equity markets and the debt markets. Secondary market provides an efficient platform for

trading of his securities.

Secondary Market Products

Equity Shares Preferred Stock / Preference shares Government securities (G-Secs) Debentures Bond

The gilt -Edged securities

Risk free

Securities guaranteed by government principal as

well as interest. The issue market - RBI does all the issues of central as well as of the state governments . Secondary market : Large stockbrokers deals in old issues and the RBI keeps securities of various maturities and interest rates to meet the demand

The gilt Edged securities

The dealers in gilt edged market are mainly institutions who have the statutory requirements to invest their funds in the government securities like LIC, GIC Provident funds . These institutions mobilize savings and invest in these securities. These are called captive market. Discriminatory auctions : The process of auctioning a single unit to the highest bidder and also the multiple units to the highest bidder till the stock exhaust.

Corporate Security Market

Primary market secondary market.

INITIAL PUBLIC OFFER(IPO)

What is IPO?
Reasons for going public
- Raising funds to finance capital

expenditure - Financing working capital - Debt refinancing - Exit route for existing investors

INITIAL PUBLIC OFFER(IPO)

(contd)..

ADVANTAGES OF GOING PUBLIC

Facilitates future funding. Valuation of company. Provides liquidity. Increases visibility.

DISADVANTAGES OF GOING PUBLIC

Dilution of ownership Involves substantial expenses. Continuous disclosure. Increased monitoring.

Commands better pricing.

Enables exchange of shares.

Listing fees.
Cost of maintaining investors. Takes substantial amount of time & efforts.

SECONDARY MARKET
Stock Exchanges provide a platform to trade

The securities are traded, cleared and settled

Indian Financial System An Overview

STRUCTURE OF FINANCIAL MARKETS IN INDIA Financial Markets in India

Debt Market Primary / Secondary

Forex Market

Capital Market Primary / Secondary & Depository

Insurance Life/General

Banks (including RRBs, co-op etc)

Mutual Funds, Venture Funds, Investment Bonds

RBI

RBI

SEBI

IRDA

RBI

RBI/SEBI

REGULATORY AUTHORITY

Thank You