CAPITAL MARKET

Introduction
It is the centre for dealing in long term
funds. It refers to the institutional arrangements for facilitating the borrowing & lending of long term funds. Acc. To H.F. Dougal: the capital market deals in long term funds both DEBT & EQUITY.

Functions

It aids economic growth. Mobilize long term savings. Provide risk capital. Provide liquidity. Improve the efficiency of capital allocation through a competitive pricing mechanism. Disseminate information. Enable wider participation

Types

Primary Market

Secondary Market

THE PRIMARY MARKET

Market for new issues, the new issues market.

THE SECONDARY MARKET

Market where outstanding or existing securities are traded

FUND RAISING MARKET

Primary market is the market for fresh capital Funds are mobilized in primary market through
public issues, right issues and private placement In India, new capital issues are floated through prospectus, rights, and private placement by government companies, non-government public limited companies (private sector), public sector undertakings, banks and financial institutions

Primary issues

Public issue Initial public Offering IPO

Rights issue

placement METHOD

Follow-on public offering FPO

Qualified institutions placement (for listed companies)

Offer for sale (existing shares) Private placement (unlisted companies)

Preferential issue

PUBLIC ISSUES
Section 67 of the companies (amendment)
act, 2000 provides that where the offer or invitation to subscribe for shares and debentures is made to 50 or more persons, then such an offer or invitation shall be deemed to the public offering Public issues are open to the general public the appointment of a Merchant Banker for the purpose

INITIAL PUBLIC OFFERING(IPO)

It is an offering of either a fresh issue of
securities or an offer for sale of securities of existing securities. Lacks information about the past performance of the company. This information asymmetry may lead to the problems of adverse selection . By an unlisted company for the first time to the public.

FOLLOW-ON PUBLIC OFFERING (FPO)

An offering of either a fresh issue of securities
or an offer for sale to the public. By an already listed company. Investors participating in these offerings take informed decisions based on its track record and performance. Listed companies with a good track record find it easier to raise funds through FPO .

OFFER DOCUMENT
Its in case of Rights Issue. Some of the pertinent information that has to be
disclosed in the offer document relate to earnings per share, pre-issue EPS for the last three years, pre-issue price-earnings ratio, average return on net worth in the last three years, minimum return on increased net worth required to maintain preissue EPS, comparison of all the accounting ratios of the issuer company, Other information include credit rating, risks in relation to the first issue, risk factors- internal and external, details of underwriting agreements, objects of the offering

 A company has to draft offer document with the SEBI at

least 21 days prior to the filing of the offer document with the registrar of companies and the stock exchanges. The draft offer document is available on the SEBI website for public comments for a period of 21 days from the filing of the draft order The merchant banker has to ensure that all the requirements of the DIP (disclosure and investor protection) guidelines are compiled with while submitting the draft offer document to the sebi

RIGHTS ISSUE
Sale of securities to the existing
public Shareholders are offered the right to subscribe to new shares in proportion to number of shares they already hold Offer is made by circular to existing shareholders only

Merits
Chief merit- an INEXPENSIVE
METHOD- usual expenses like underwriting commission, brokerage and other administrative expenses.
applications & allotment is less cumbersome because the number is limited.

LESS CUMBERSOME- management of

Placement method
The securities are sold by the issuing companies to
certain Intermediaries such as brokers, issue houses of FIs so as to privately place shares to their customers & associates. Companies reserve rights for private placements on their own. SEBI has laid down restrictions on the reservations of securities in any public issues. The maximum permissible allotment is restricted to 10% for permanent employees, 10% for shareholders for promoting companies, 20% for Indian mutual funds, 24% for FIIs & 20% for FIs.

Offer for sale

The issuing company sells or agrees to sell the
whole securities to certain issue houses or specialized FIs at a fixed price for resale. These are issue houses or FIs make offer for the sale of such securities to the public through their own advertisement. They charge higher price which they have obtained.

ELIGIBILITY NORMS
The SEBI has laid down eligibility norms for
entities raising funds through an IPO and an FPO. Entry norm 1 The company desiring to tap the primary market shall meet the following requirements Net tangible assets of at least Rs. 3 crores for three full years, of which not more than 50% is held in monetary assets Distributable profits in at least three out of the five preceding years

ELIGIBILITY NORMS
Net worth of at least rs. 1 crore in three
years If there is a change in the companys name, at least 50% revenue for preceding one year should be earned from the new activity The issue size should not exceed 5 times the pre-issue net worth. On account of rigidity of the parameters, the SEBI has provided two other alternative routes to a company not meeting any of the above mentioned

Entry norm 2 Issue shall be through a book building issue With at least 50% of the issue to be mandatorily allotted to the Qualified institutional buyers, failing which the money shall be refunded The minimum post-issue face value capital shall be Rs.10 crores or there shall be compulsory market making for at least 2 years Or

Entry norm 3 The project is appraised and participated to the extent of 15% by FI/scheduled commercial banks of which at least 10% comes from the appraisers. The minimum post-issue face value capital shall be Rs. 10 crore or there shall be compulsory market making for at least 2 years.

The SEBI has exempted the following entities from entry norms

Private sector banks Public sector banks An infrastructure company whose project has been
appraised by IDFC or a bank which was earlier a pfi and not less than 5 per cent of the project cost is financed by any of these institutions Rights issue by a listed company

Secondary Market

Secondary/Stock market!!!!

Introduction
These are also known as Stock Market .
They enable shareholders to sell their holdings readily,
thereby ensuring liquidity.

The investors can also continuously re-arrange their assets.

The stock exchanges provide a market where such mutually
satisfactory prices may be determined.

An active secondary market in fact promotes the growth of the

primary market and helps in capital formation.

FUNCTIONS OF STOCK EXCHANGES

The stock exchanges (SE) provide an organized market place
for the investors to buy and sell securities freely.

the market for these securities is an almost perfectly

participate.

competitive one because a large number of seller and buyers

the SE provides an auction market in which members of the

SE participate to ensure continuity of price and liquidity to investors. to better psychology of expectations,

An active and healthy secondary market in existing securities, lead Considerable broadening of investment enquiries render the task
of raising resources by entrepreneurs easier.

 Creation of a continuous market for the securities

Measure the liquidity in the market

Help in fair price determination Educate investors Eliminate dishonest practices

Secondary Market

SECURITY

BOND
STOCK 1)COMMON STOCKS 2)PREFERRED STOCKS

SHARE

MUTUAL FUNDS.
PAR VALUE vs. MARKET VALUE

BULLISH vs. BEARISH

How does the stock market function?

Stock exchanges Brokers Registrars Depositories and their participants Securities and Exchange Board of India (SEBI) Financial Regulators SEBI RBI Ministry of finance

Stock Exchanges in INDIA

Mangalore Stock Exchange Hyderabad Stock Exchange Uttar Pradesh Stock Exchange Coimbatore Stock Exchange Cochin Stock Exchange Bangalore Stock Exchange Saurashtra Kutch Stock Exchange Pune Stock Exchange National Stock Exchange OTC Exchange of India Calcutta Stock Exchange Inter-connected Stock Exchange (NEW) Madras Stock Exchange

Bombay Stock Exchange Madhya Pradesh Stock Exchange Vadodara Stock Exchange The Ahmedabad Stock Exchange Magadh Stock Exchange Gauhati Stock Exchange Bhubaneswar Stock Exchange Jaipur Stock Exchange Delhi Stock Exchange Assoc Ludhiana Stock Exchange

In India generally we have order driven auction market NSE: order driven BSE : hybrid market , auction system but quote driven.

Trading NSE introduced for the first time in India, fully

TRADING ARRANGEMENTS

automated screen based trading. It uses a modern, fully computerized trading system designed to offer investors across the length and breadth of the country a safe and easy way to invest. The NSE trading system called 'National Exchange for Automated Trading' (NEAT) is a fully automated screen based trading system NSE and OTCEI : screen based trading 8,000 terminals spread across the country.

 Stock Index captures the behavior of the overall

equity market. Movements of the index should represent the returns obtained by "typical" portfolios in the country.
,BSE Midcap , BSE Smallcap

BSE Indices : Sensex , BSE-100 , BSE-200 , BSE-500 NSE Indices : S&P CNX Nifty , CNX Nifty Junior-100
Index -15 listed companies

second rung of growth stocks , CNX MidCap , CNX IT Sector Index , CNX PSE Index -20 PSE stocks , CNX MNC

 SENSEX is calculated using the "Free-float Market Capitalization" methodology takes into consideration only those shares issued by the
company that are readily available for trading in the market, wherein, the

level of index at any point of time reflects the free-float market value of 30 component stocks relative to a base
period.

the base period of SENSEX is 1978-79 and the base value

is 100 index points.

during market hours, prices of the index scrips , at which

latest trades are executed, are used by the trading system to calculate SENSEX every 15 seconds.

 Large Cap Stocks - Companies with large capitalization.

Traditionally, the safest stocks, but also the least rewarding in return.
Infosys Technologies , Bharti-Tele-Ventures Ltd. , ICICI Bank Ltd , HDFC Ltd , ONGC Ltd , Maruti Udyog Ltd ,

Mid Cap Stocks - Bigger than small caps, smaller than

India-bulls Securities Ltd. ; Thomas Cook ( India ) Ltd. ; Century Plyboards ( India ) Ltd. ; Jet Airways( India ) Ltd. ; Parshavnath Developers Ltd. ; Nicholas Piramal India Ltd.

large caps, they are also in the middle of the road in terms of risk and reward.

Small Cap Stocks - Smaller companies that usually grow

faster, giving a better return, but are riskier because they have less protection against going out of business due to their small size.
Kajaria Ceramics Ltd. ; Kohinoor Foods Ltd. ; Bata India Ltd. ; Arvind Mills Ltd. ; J.K. Cement Ltd.

Functions Of SEBI

Regulates Capital Market.

Checks Trading of securities.

Checks the malpractices in securities market.
It enhances investor's knowledge on market by providing education.

It regulates the stockbrokers and sub-brokers.

To promote Research and Investigation

Functions Of RBI
Monetary Authority

Issuer of currency
Regulator and supervisor of the financial system Authority On Foreign Exchange Developmental role Related Functions

DRAWBACKS OF INDIAN STOCK MARKET:

Unethical practices. Big irrational greed, excessive speculation. Lack of protection to interests of the genuine and small investors . Trading is extremely thin and restricted. Structural and organizational imbalance in the growth of the stock market. Volatility of the market has increased over the years.

HOW TO MAKE MONEY FROM CAITAL MARKET?

patience, profound knowledge. Best guess. Diversification . Portfolio management.

Presented By:- AMIT KUMAR

Member of Commerce Department