ori facts of capital markets and instruments

8/3/2019 Ori Facts of Capital Markets and Instruments

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For starting any business an entrepreneur needsinvestments in the form of capital.

Amount of capital depends on size of project.

Incase of large capital, borrowing required. Borrowing-problem: paying monthly interest. Not

possible if long term project taken up.

Borrowing from bank- security, collateral needed.

Borrowing from public.


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Capital Market-one demands, the other supplies.

It refers to all facilities and institutional arrangements forborrowing and lending term funds(medium term & long-term funds).

Deals with raising money capital for investment purpose. Major demand from-

1. Pvt. Sector Mfg Ind.

2. Agriculture.

3. Govt for Economic Development.

Ideal capital market-provides adequate capital atreasonable rate of return.


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Commercial banks-largely in govt securities, some incompanies debentures.

LIC, GIC- major interest in govt securities.

Provident funds-mostly in govt securities. Special Institutions set up after Independence- IFCI,

ICICI, IDBI, UTI, etc.- provide long term capital to pvtsector.


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Productive use of economys savings, mobilizes savings ofpeople.

Provides incentive to save and facilitates capital formation

with suitable rates of interest. Provides avenue for investors- household sector to invest

in financial assets(which are more productive thanphysical assets).

Increase in production and productivity of economy-enhances economic welfare of society.

Give directions to the flow of funds and bring rationalallocation of scarce resources.


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Capital Market inIndia

IndustrialSecurities Market

PrimaryMarkets

SecondaryMarkets

Government

Securities(Gilt -edgedmarket)

Development

FinancialInstitutions(D

FIs)

1)IFCI

2)ICICI

3)SFC

4)IDBI

5)UTI ,etc

FinancialIntermediaries

1)MerchantBank

2)MutualFunds

3)LeasingCompanies

4)VentureCapitalCompanies

5)Others

TYPES OF CAPITAL MARKETS IN INDIA


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Securities issued directly to investors by the company.

Used by the companies for the purpose of setting upnew business or expanding or modernizing business.

Facilitating capital formation in the economy.

Characteristics and Role:


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Advantages

Good avenues forinvestment in financial

assets. Mobilization of savings.

Wastage in unproductivepurpose avoided.

Huge money can be raised. Rapid industrial growth of

an economy.

Disadvantages

Affects innocent investors.

Lack of post issue

seriousness. Market subject to volatility

No adequate attention paidto technical, managerial

and feasibility aspectswhile project appraisal.


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Market where securities are traded after being initiallyoffered to the public in primary market and/or listedon the Stock Exchange.

Comprises of Equity markets and Debt markets. Examples: New York Stock Exchange(NYSE),

Bombay Stock Exchange(BSE), NationalStock Exchange(NSE), bond markets,etc.


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Equity share

Right Issue/shares

Bonus shares

Preferred Stock/Preference Share Cumulative Preference Shares

Debentures

Commercial paper

Coupons

Treasury Bills


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Capital Market Instruments are the medium of trade in themarket.

These are responsible for generating funds for thecompanies, corporations and sometimes for the national

government also. Eg: stocks , bonds, debentures, T-bills, foreign exchange,

fixed deposits, etc.

The 2 basic instruments are Stock & Bond and are used in 2

different markets. Stocks are used as a capital market instrument in physical,

virtual & auction market.


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On the other hand, the bonds are traded in the separate

bond market.

This market is also known as debt,credit or fixed incomemarket.

The capital market is characterized by a large variety offinancial instruments: equity and preference shares, FCDs,NCDs and PCDs currently dominate the capital market,

however new instruments are being introduced such asdebentures bundled with warrants, participating preferenceshares, zero-coupon bonds, secured premium notes, etc.


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HISTORICAL PERSPECTIVE

Stock Market was for a privileged few

Archaic systems - Out cry method

Lack of Transparency - High tones costs

No use of Technology

Outdated banking system

Volumes - less than Rs. 300 cr per day

No settlement guarantee mechanism High

risks.


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1994 - Equity Trading commences on NSE

1995 - All Trading goes Electronic

1996 - Depository comes in to existence

1999 - FIIs Participation- Globalization

2000 - over 80%trades in DEMAT form

2001 - major stocks move to rolling settlements

2003 - T + 2settlements in all stocks

2003 - Demutualisation of exchanges


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The 1990s have witnessedthe emergence of the

securities market as amajor source of finance for

trade and industry in India. A growing number of

companies have beenaccessing the securities

market rather thandepending on loans fromfinancial institutions banks

CAPITAL MARKET REFORMSIN INDIA


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Krishma

Nidhi

Aastha

THANK YOU.

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