Introduction to Capital

Markets

Group 4
Abhishek Bhatnagar
Aniruddha
Deshpande
Rajiv Singhai
Surbhi Jain
Varun Baxi
Vishal Tulsiyan

15P003
15P005
15P040
15P053
15P055
15P059

What are capital markets?

Capital markets are a sub-part of the financial system

The primal role of this market is to make investment

from investors who have surplus funds to the ones
who are running a deficit

Structure of capital markets

Significance of Capital markets

Mobilization of the wealth of savers to those who can put it to long-term
productive use, such as companies or governments making long-term
investments
Efficient allocation of investment resources arranging investment funds to
those units of the organization which are in need of the same
Speed up economic growth and development unfettered flow of surplus
funds to deficit units (ensures growth of investment & employment)
Entrepreneurship Growth makes the necessary financial resources available
Stock indices are barometers of the economy

Functions of a capital market

Disseminate information efficiently

Enable quick valuation of financial instruments both equity and
debt
Enable wider participation
Provide operational efficiency through
simplified transaction procedure
lowering settlement timings and
Lowering transaction costs

Types of Capital Markets

Primary Market

Secondary 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.

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

Common Capital Market

Instruments
Stocks:

A security that represents ownership in a corporation. Holders of

common stock exercise control by electing a board of directors and voting on
corporate policy. Common stockholders are on the bottom of the priority
ladder for ownership structure. In the event of liquidation, common
shareholders have rights to a company's assets only after bondholders,
preferred shareholders and other debt-holders have been paid in full.

Preference Shares:

A class of ownership in a corporation that has

a higher claim on its assets and earnings than common stock. Preferred
shares generally have a dividend that must be paid out before dividends to
common shareholders, and the shares usually do not carry voting rights.
Preferred stock combines features of debt, in that it pays fixed dividends,
and equity, in that it has the potential to appreciate in price. The details of
each preferred stock depend on the issue

Major Capital Market Instruments

Bonds:
Bonds refer to debt instruments bearing interest on maturity. In simple
terms, organizations may borrow funds by issuing debt securities
named bonds, having a fixed maturity period (more than one year) and
pay a specified rate of interest (coupon rate) on the principal amount to
the holders. Thus a bond is like a loan: the issuer is the borrower
(debtor), the holder is the lender (creditor), and the coupon is the
interest.

Debentures:
Debentures are the debt instruments similar to Bonds. In India Debentures
and Bonds are used interchangeably. However in some countries like
USA Debentures are the debt instruments issued in order to raise the
capital for some specific purpose, i.e. to raise the capital for short term
or for expansion thus debenture is also like a loan.

Scenario of Indian Capital

Market
Resource Mobilised in Primary Markets

80000
70000

Amount(Cr)

60000
50000
40000
30000
20000
10000
0
2009-10

2010-11

2011-12

2012-13

2013-14

Year

Source: Indiastat database

The Data of the Primary market is the reflection of the

state of the economy
Due to the declining state of Indian Economy when the
investments started phasing out there was the decline in
the amount of capital raised

 Decisions about the

capital structure of the
company
largely
depends on the cost of
capital
Thus the division of
capital raising through
IPO and bonds is
largely depended on
the cost of Debt and
Cost of Equity.

Source PRIME Database, World bank data

Secondary Market in India

Secondary Market is the market where the securities are resold

Secondary markets performance is the function of fundamental
factors as well as sentiments
Secondary markets are also used as the barometer of the health of
the economy and investors confidence

Thank You