What is Capital Market?

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"This presentation covers the fundamentals of the Indian capital markets. It includes a briefing on the various instruments available for fund raising and investing. It will help you understand the basics of shares, debentures, bonds, commodities and other instruments".

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  • "This presentation covers the fundamentals of the <a href="http://investmentz.com/News/Pre-Session">Indian capital markets.</a> It includes a briefing on the various instruments available for fund raising and investing. It will help you understand the basics of shares, debentures, bonds, commodities and other instruments". 
  • What is Capital Market?

    1. 1. Introduction•For starting any business, an entrepreneur needs investment in theform of capital•An entrepreneur may not be able to invest his own money so he hasto borrow•Problem in borrowing•Banks / Financial Institutions may demand a security for their loans inthe form of a collateral
    2. 2. What is a Capital Market?•A capital market is a market for securities (debt or equity), wherebusiness enterprises (companies) and governments can raise long-term funds•It is defined as a market in which money is provided for periodslonger than a year•Capital market is a market for long term debts and equity shares•The issue may be Shares, Debentures, Bonds, etc.
    3. 3. Importance of Capital Market•Pool the capital resources•Solve the problem of shortage of funds•Mobilize the small and scattered savings•Increase the availability of invest-able funds•Provide a number of profitable investment opportunities for a smallsavers
    4. 4. Classification of Capital Market CAPITAL MARKET PRIMARY MARKET SECONDARY MARKETPUBLIC RIGHT BONUS PRIVATE PRIVATEISSUE ISSUE ISSUE PLACEMENT PLACEMENT
    5. 5. Primary Market•Primary-The market for new securities issues.-In the primary market, the security is purchased directly from the issuer.•Initial Public Offering (IPO)-When an unlisted company makes either a fresh issue of securities or an offerfor sale of its existing securities or both for the first time to the public. Thispaves way for listing and trading of theissuer’s securities.•Follow on Public Offering (Further Issue)-When an already listed company makes either a fresh issue of securities to thepublic or an offer for sale to the public, through an Offer document.
    6. 6. Primary Market (Contd)•Rights Issue−A rights issue is a way in which a company can sell new shares in order toraise capital. Shares are offered to existing shareholders in proportion totheir current shareholding. This route is best suited for companies whowould like to raise capital without diluting stake of its existing shareholders.•Preferential Issue-An issue of shares or of convertible securities by listed companies to aselect group of persons under Section 81 of the Companies Act, 1956which is neither a rights issue nor a public issue. This is a faster way for acompany to raise equity capital.
    7. 7. Secondary Market•Secondary Market refers to a market where securities are tradedafter being initially offered to the public in the primary market and /or listed on the stock exchange.•Secondary market comprises of Equity market and Debt market.•It is the trading avenue in which the already existing securities aretraded amongst investors.
    8. 8. Financial Instruments dealt in Secondary Market•Equity Shares:-An equity share, commonly referred to as ordinary share, represents theform of fractional ownership in a business venture-Holders of the equity shares are members of the company and have votingrights.•Right shares:-This refers to the issue of new securities to the existing shareholders, at aratio to those shares already held.•Preference shares:-Preferred share has characteristics of both common shares and bonds. Likecommon shares, preferred share owners have an ownership interest in thecompany. Like bonds, preferred stocks carry a commitment by the companyto pay a fixed amount of interest to shareholders in the form of dividends.However, preferred stocks dividends must be paid before common stockdividends.
    9. 9. Financial Instruments dealt in Secondary Market (Contd)•Debentures:-Debentures are issued by a company to raise short to medium term loansneeded for expenses or expansions. It is an unsecured bond in which thebondholder has no claim on the assets of the bond issuer.•Bonds:-A bond is a negotiable certificate evidencing indebtedness. It is normallyunsecured.
    10. 10. Depository “A depository is like a bank wherein the deposits are securities (viz. shares, debentures, bonds, government securities, units etc.) in electronic form”. There are two Depositories in our country:–NSDL–CDSL
    11. 11. Corporate Actions• Dividend:-Dividend is distribution of part of companys earnings to shareholders, usuallytwice a year in the form of a final dividend or an interim dividend.• Stock Split:-When company splits the existing shares of a particular face value into smallerdenominations so that the number of shares increase, the market capitalizationor the value of shares held by the investors post split remains the same as thatbefore the split.• Bonus Shares:-These shares are issued by the companies to their shareholders free of costby capitalization of accumulated reserves from the profit earned in the earlieryears.
    12. 12. Corporate Actions (Contd)•Buy back:-A method for company to invest in itself by buying shares from other investorsin the market. Buybacks reduces the number of shares outstanding in themarket.•Rolling Settlement:-Under rolling settlement all open positions at the end of the day mandatorilyresult in payment/ delivery ‘n’ days later. Currently trades in rolling settlementare settled on T+2 basis where T is the trade day.•Pay- in Day and Pay-out Day:-Pay-in day is the day when the brokers make payments or delivery ofsecurities to the exchange.-Pay-out day is the day when the exchange makes payment or delivery ofsecurities to the broker.
    13. 13. Role of Various Participants•Depository–A Company where the shares of an individual are held in an electronicform, at the request of the shareholder.•Stock exchange–A Company that provides services for stock brokers and traders totrade stocks, bonds and other securities.•Clearing Corporation–A Company which works with the exchanges to handle confirmation,delivery and settlement of transactions.•Clearing Members–A Member of the Clearing Corporation who clears and settles dealsthrough the Clearing Corporation.•Trading Member–A Member of Exchanges who has the right to execute transactions inthe trading system of the exchange.
    14. 14. Derivative “Derivative is a contract which derives its value from the prices of underlying assets”.•Future:–An agreement between two parties to buy or sell an asset at a certain timein the future at a certain price–Future Price = Spot Price + Cost of Carry•Options-Options are of two types – calls and puts. Calls give the buyer the right but notthe obligation to buy a given quantity of the underlying asset, at a given priceon or before a given future date. Puts give the buyer the right, but not obligationto sell a given quantity of the underlying asset at a given price on or before agiven date.
    15. 15. Derivative (Contd)•Financial Future:–A future contract for which the underlying assets are stocks or index•Commodity Future:–A future contracts for which underlying assets is commodity.•Commodity Spot:–Cash Segment of commodity market.•Currency Future:–A future contracts for which underlying assets is the Currency.
    16. 16. Thank You

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