Introduction to capital markets

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Introduction to capital markets

  1. 1. 1
  2. 2. Contents Various types of financial markets What is a Capital Market? Nature of Capital Market Capital Market Efficiency Types of Capital Markets Primary Market Methods of Raising Capital in Primary Market Features of Primary Market Secondary Market Features of Secondary Market Participants in the Secondary Market Products dealt in Secondary Market Difference between primary and secondary market SEBI and its Features2
  3. 3. What are the various types offinancial markets?The Financial Markets canbroadly be divided into: MONEY MARKET CAPITAL MARKET3
  4. 4. Capital Market The market where investmentinstruments like bonds, equities andmortgages are traded is known as theCapital Market. The primal role of this market is to makeinvestment from investors who havesurplus funds to the ones who arerunning a deficit.4
  5. 5. Significance of Capital Market Link between savers and investors Stability in security prices Speed up economic growth and development Helps in capital formation Helps in creating liquidity5
  6. 6. Capital Market EfficiencyThe degree to which the present assetprice accurately reflects currentinformation in the market place.Forms: Weak Semi strong Strong6
  7. 7. Types of Capital Markets :7
  8. 8.  PRIMARY MARKET :A market where the issuers access theprospective investors directly forfunds required by them either forexpansion or for meeting theworking capital needs. This processis called disintermediation where thefunds flow directly from investors toissuers.The primary market is also called newissue market.8
  9. 9. Features of Primary Market: This is the market for new long term capital. The primarymarket is the market where the securities are sold for thefirst time. Therefore it is also called New Issue Market(NIM). In a primary issue, the securities are issued by thecompany directly to investors. The company receives the money and issue new securitycertificates to the investors. Primary issues are used by companies for the purpose ofsetting up new business or for expanding or modernizingthe existing business. The primary market performs the crucial function offacilitating capital formation in the economy. The new issue market does not include certain othersources of new long term external finance, such as loansfrom financial institutions. Borrowers in the new issuemarket may be raising capital for converting privatecapital into public capital; this is known as ‘going public’.9
  10. 10. Methods of raising capital in thePrimary Market: Public issue Private placement Euro issues Government securities Offer for sale Right issue Electronic initial public offering10
  11. 11. A market where securities aretraded after being initially offeredto the public in the primarymarket and/or listed in the stockexchange. Majority of the tradingis done in the secondary market.This market comprises of Equitymarket and Debt Market.Secondary market provides liquidityto the securities on theexchange(s) and this activitycommences subsequent to theoriginal issue.SECONDARY MARKET :11
  12. 12. Features of Secondary Markets Help in determining fair prices based ondemand and supply forces and allavailable information Provides easy marketability and liquidityfor investors Facilitation in capital allocations inprimary market through price signalling Enabling investors to adjust portfolios ofsecurities12
  13. 13. Participants in the SecondaryMarket Stock Exchange Clearing Corporation Depositories/ DP Trading Member (Stock Broker)/Clearing Member Registrar to an Issue and Share TransferAgent13
  14. 14. What are the products dealt inSecondary Markets ? Equity shares Debentures Government securities Bonds14
  15. 15. Difference between Primary andSecondary MarketIn the primary market, securities areoffered to public for subscription for thepurpose of raising capital or fund.Secondary market is an equity tradingavenue in which already existing/pre-issued securities are traded amonginvestors.Secondary market could be either auctionor dealer market. While stock exchangeis a part of an auction market.15
  16. 16. Securities and Exchange Boardof India (SEBI)SEBI is the regulator of securities marketin India. It was established on 12 April1988.16
  17. 17. SEBI is required to regulate and promote the securitiesmarket by: Providing fair dealings in the issues of securities andensuring a market place where funds can be raised ata relatively low cost. Providing a degree of protection to the investors andsafeguard their rights and interests so that there is asteady flow of savings into the market. Regulating and developing a code of conduct and fairprices by intermediaries in the capital market likebrokers and merchant banks with a view to makethem competitive and professional. 17
  18. 18. Role of SEBI in Indian Capital Market Power to make rules for controlling stock exchange :SEBI has power to make new rules for controlling stock exchange in India. For example, SEBIfixed the time of trading 9 AM and 5 PM in stock market. To provide license to dealers and brokers :SEBI has power to provide license to dealers and brokers of capital market. If SEBI sees thatany financial product is of capital nature, then SEBI can also control to that product and itsdealers. To Stop fraud in Capital Market :SEBI has many powers for stopping fraud in capital market.> It can ban on the trading of those brokers who are involved in fraudulent and unfair tradepractices relating to stock market.> It can impose the penalties on capital market intermediaries if they involve in insider trading. To Control the Merge, Acquisition and Takeover the companies :SEBI sees whether this merge or acquisition is for development of business or to harm capitalmarket. To audit the performance of stock market :SEBI uses his powers to audit the performance of different Indian stock exchange for bringingtransparency in the working of stock exchanges.18
  19. 19.  To make new rules on carry - forward transactions :> Share trading transactions carry forward can not exceed 25% of brokerstotal transactions.> 90 day limit for carry forward. To create relationship with ICAI :SEBI creates good relationship with ICAI for bringing more transparency in theauditing work. Introduction of derivative contracts on Volatility Index :For reducing the risk of investors, SEBI has now been decided to permit StockExchanges to introduce derivative contracts on Volatility Index To Require report of Portfolio Management Activities :SEBI has also power to require report of portfolio management to check thecapital market performance. To educate the investors :Time to time, SEBI arranges scheduled workshops to educate the investors.19
  20. 20. 20Presented By:Surabhi SharanHeena GuptaHarpriya ChandarAtul DaillaMihir MagidewarParth KalyanAkshay Rawat
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