Primary, Secondary, Money and Capital Markets

1. Primary, Secondary,
Money And Capital
Markets
Himani Sabharwal, Jatin Aggarwal, Nandita Jaitly, Nikhhil Yadav

2. MONEY MARKET

3. As defined by the RBI…
The money market is the centre for dealing mainly of short
character, in monetary assets; it meets the short term
requirements of borrowers and provides liquidity or cash to
the lenders. It is a place where short term surplus investible
funds at the disposal of financial and other institutions and
individuals are bid by borrowers, again comprising
institutions and individuals and also by the government.

4. To be very precise..
The money market in that part of a financial market which
deals in the borrowing and lending of short term loans generally
for a period of less than or equal to 365 days.
It is a mechanism to clear short term monetary transactions in
an economy.
A money market comprises of a well organized banking
system. Various financial instruments are used for transactions in
a money market.
There is perfect mobility of funds in a money market. The
transactions in a money market are of short term nature.

5. FUNCTIONS OF MONEY MARKET
To maintain monetary equilibrium.
To promote economic growth.
To provide help to Trade and Industry.
To help in implementing Monetary Policy.
To help in Capital Formation.

6. Components of
Indian Money
Market
Call Money Market
Commercial Bill Market
Treasury Bill Market
Market for Certificate of Deposits
Market for Commercial Papers
(CPs)
Short Term Loan Market

7. ‘Shuddh Desi’ Money market
Features of the Indian Money Market

8. CAPITAL MARKET

9. CAPITAL Market? Come again?
 The capital market is a market for financial assets which have a long or indefinite
maturity. Unlike money market instruments the capital market instruments
become mature for the period above one year.
 It is an institutional arrangement to borrow and lend money for a longer period of
time.
 It consists of financial institutions like IDBI, ICICI, UTI, LIC, etc. These institutions
play the role of lenders in the capital market.
 Capital market can be classified into primary and secondary markets. The
primary market is a market for new shares, where as in the secondary market the
existing securities are traded.
 Capital market institutions provide rupee loans, foreign exchange loans,
consultancy services and underwriting.

10. Significance
of Capital
Market
o Mobilization of Savings
o Capital Formation
o Provision of Investment
Avenue
o Speed up Economic
Growth and
Development
o Proper Regulation of
Funds
o Service Provision
o Continuous Availability
of Funds

11. Categories of the Capital Market:
classification is done on the basis of the nature of the instrument
brought in the market
Primary Market Secondary Market

12. However, on the basis of types of
institutions involved…
It can be classified into various categories such as the
Government Securities Market Or Gilt-edged Market,
Industrial Securities Market, Development Financial
Institutions, and Financial Intermediaries.

13. These different segments of the capital market
help to develop the institution of capital
market in many dimensions. Primary market
helps in raising fresh capital, in secondary
market, the buying and selling (trading) of
capital market instruments takes place.
The following chart will help us in understanding the
organizational structure of the Indian Capital Market.

14. Structure of the Indian Capital Market

15. Government Securities Market
 This is also known as the Gilt-edged market. This refers to the
market for Government and semi-government securities backed
by the Reserve Bank of India (RBI).
 Government securities are tradeable debt instruments issued by
the Government for meeting its financial requirements.
 The term gilt-edged means 'of the best quality'. This is because
the Government securities do not suffer from risk of default and
are highly liquid (as they can be easily sold in the market at their
current price). The open market operations of the RBI are also
conducted in such securities.

16. Industrial Securities Market
 This is a market for industrial securities, that is, a market for shares
and debentures of the existing and new corporate firms. This market
is further classified into two types of market: Primary: new issues
market and Secondary: old, existing issues market.
 In primary market, fresh capital is raised by companies fresh capital
is raised by companies by issuing new shares, bonds, units of
mutual funds and debentures. However in the secondary market
already existing i.e old shares and debentures are traded. This
trading takes place through the registered stock exchanges.

17. Development Financial Institutions (DFIs)
This is yet another important segment of Indian capital
market. This comprises various financial institutions. These
can be special purpose institutions like IFCI, ICICI, SFCs,
IDBI, IIBI, UTI, etc. These financial institutions provide long
term finance for those purposes for which they are set up.

18. Financial Intermediaries
The fourth important segment of the Indian capital market
is the financial intermediaries. This comprises various
merchant banking institutions, mutual funds, leasing
finance companies, venture capital companies and other
financial institutions.

19. Regulatory Framework of
Indian Capital Market

20. In India, the capital market is regulated by the Capital Markets
Division of the Department of Economic Affairs, Ministry of Finance.
The division is responsible for formulating the policies related to the
orderly growth and development of the securities markets (i.e. share,
debt and derivatives) as well as protecting the interest of the investors.
In particular, it is responsible for (i) institutional reforms in the securities
markets, (ii) building regulatory and market institutions, (iii)
strengthening investor protection mechanism, and (iv) providing
efficient legislative framework for securities markets, such as Securities
and Exchange Board of India Act, 1992 (SEBI Act 1992); Securities
Contracts (Regulation) Act, 1956; and the Depositories Act, 1996. The
division administers these legislations and the rules framed thereunder.
Capital Markets Division of the Department of
Economic Affairs, Ministry of Finance

21. Securities and Exchange Board of India
(SEBI)
 The Securities and Exchange Board of India (SEBI) is the regulatory
authority established under the SEBI Act 1992, in order to protect the
interests of the investors in securities as well as promote the
development of the capital market. It involves regulating the
business in stock exchanges; supervising the working of stock
brokers, share transfer agents, merchant bankers, underwriters, etc;
as well as prohibiting unfair trade practices in the securities market.

22. PRIMARY MARKETS

23. An entrepreneur?
Where to get the funds from?
The limited pool of savings of a small circle of friends and relatives?
Why not issue shares of the company and raise money from the public instead?

24. PRIMARY MARKETS! Come again?
o Primary market is a market wherein corporates issue new
securities for raising funds generally for long term capital
requirement.
o The market provides a channel for the issuance of new
securities by issuers (Government companies or corporates)
to raise capital.

25. FEATURES OF PRIMARY MARKETS
 The securities are issued by the company directly to the investors.
 The company receives the money and issues new securities to the
investors.
 The primary markets are used by companies for the purpose of
setting up new ventures/ business or for expanding or modernizing
the existing business
 Primary market performs the crucial function of facilitating capital
formation in the economy

26. Primary Market Underwriters
Investment banks are the main underwriters in the primary
markets and thus are the major facilitators of these types
of markets. They normally decide the base price of the
securities on sale and then administer the entire process
of its sale to the investors.
 The underwriters also play the important role of
safeguarding the issue related risks for the companies that
are offering the shares for sale.

27. There are three methods through which
securities can be issued in the primary market:
Rights Issue,
Initial Public Offer (IPO), and
Preferential issue.

28. Primary Market Volatility
 Unpredictability is one of the major features of a primary market.
They are normally more unstable compared to the secondary
markets, which see majority of the trades in an exchange. The
major reason behind this is the fact that it is difficult to precisely
assess the levels of demand among investors for a security before a
couple of days of trading.

29. Primary Market Sales
 There are several ways in which sales operations are conducted at
the primary markets. Companies can provide their shares at face
value or they can also be sold at discounted prices. Securities can
be sold in both international and domestic markets. When a
transaction is completed in a primary market, the issuing
organization provides the investors new security certificates.

30. Primary Market Dealers
 The dealers who operate at the primary markets receive
commissions that are included in the prices at which the securities
are offered.

31. Importance of Primary Markets:
 Unpredictability is one of the major features of a primary market.
They are normally more unstable compared to the secondary
markets, which see majority of the trades in an exchange. The
major reason behind this is the fact that it is difficult to precisely
assess the levels of demand among investors for a security before a
couple of days of trading.

32. SECONDARY MARKETS
While the primary market deals with the new issues of securities, outstanding securities are
traded in the secondary market.

33. SEBI’s Role in the Secondary market
SEBI is the regulatory authority established under Section 3
of SEBI Act 1992
Protects the interests of the investors in securities
Promote the development of, and to regulate, the
securities market and for matters connected therewith
and incidental thereto.

34. Products Dealt in Secondary Markets
 An equity share
 Rights Issue
 Bonus Shares
 Preference shares
 Government securities
 Debentures
 Bond
 Commercial Paper
 Treasury Bill

35. Mock Stocks made EASY!
Broker/sub broker
Types of Orders
Settlement Cycle
What is the pay-in day and pay- out day?
What is Margin Trading Facility?
What is Short Selling
What is Securities Lending & Borrowing? What is BSE IndoNext?
What is the structure of the stock exchanges in India?
What is demutualisation of stock exchanges?
How is a demutualised exchange different from a
mutual exchange?
Currently are there any demutualised stock
exchanges in India?
What is day trading?
What are the various accounts an investor should have for trading in securities market?
Settlement Cycle
Price Filters