Capital Market And its types...

1. CAPITAL MARKETCAPITAL MARKET
By:
NAMITA ROHILLA
JAGANNATH UNIVERSITY NCR HARYANA

2. CAPITALCAPITAL MARKETMARKET
 The market where investment instruments like
bonds, equities and mortgages are traded is
known as the capital market.
 The primal role of this market is to make
investment from investors who have surplus
funds to the ones who are running a deficit.

3.  The capital market offers both long term and
overnight funds.
 The different types of financial instruments
that are traded in the capital markets are:
> equity instruments
> credit market instruments,
> insurance instruments,
> foreign exchange instruments,
> hybrid instruments and
> derivative instruments.

4. Importance of Capital MarketsImportance of Capital Markets
 Help firms and governments raise cash by sellingHelp firms and governments raise cash by selling
securitiessecurities
 Allow investors with excess funds to invest and earn aAllow investors with excess funds to invest and earn a
returnreturn
 Channel funds from savers to borrowersChannel funds from savers to borrowers
 Allocate resources optimally (i.e., provide funds to thoseAllocate resources optimally (i.e., provide funds to those
who can make the best use of them)who can make the best use of them)
 Help allocate cash to where it is most productiveHelp allocate cash to where it is most productive
 Help lower the cost of exchangeHelp lower the cost of exchange
 Secondary markets, where investors trade existingSecondary markets, where investors trade existing
securities, assures investors that they can quickly sellsecurities, assures investors that they can quickly sell
their securities if the need arisestheir securities if the need arises

5. Types of capital marketTypes of capital market
There are two types of capital market:There are two types of capital market:
 Primary market,Primary market,
 Secondary marketSecondary market

6. Primary MarketPrimary Market
 It is that market in which shares,It is that market in which shares,
debentures and other securities are sold fordebentures and other securities are sold for
the first time for collecting long-termthe first time for collecting long-term
capital.capital.
 This market is concerned with new issues.This market is concerned with new issues.
Therefore, the primary market is also calledTherefore, the primary market is also called
NEW ISSUE MARKET.NEW ISSUE MARKET.

7.  In this market, the flow of funds is from saversIn this market, the flow of funds is from savers
to borrowers (industries), hence, it helps directlyto borrowers (industries), hence, it helps directly
in the capital formation of the country.in the capital formation of the country.
 The money collected from this market isThe money collected from this market is
generally used by the companies to modernizegenerally used by the companies to modernize
the plant, machinery and buildings, forthe plant, machinery and buildings, for
extending business, and for setting up newextending business, and for setting up new
business unit.business unit.

8. Features of Primary MarketFeatures of Primary Market
 It Is Related With New IssuesIt Is Related With New Issues
 It Has No Particular PlaceIt Has No Particular Place
 It Has Various Methods Of Float Capital: FollowingIt Has Various Methods Of Float Capital: Following
are the methods of raising capital in the primaryare the methods of raising capital in the primary
market:market:
i) Public Issuei) Public Issue
ii) Offer For Saleii) Offer For Sale
iii) Private Placementiii) Private Placement
iv) Right Issueiv) Right Issue
v)v) Electronic-Initial Public OfferElectronic-Initial Public Offer
 It comes before Secondary MarketIt comes before Secondary Market

9.  Initial public offering (IPO)Initial public offering (IPO) The first sale of aThe first sale of a
company’s stock to the general public.company’s stock to the general public.
 Investment bankersInvestment bankers Financial specialists whoFinancial specialists who
handle the sales of most corporate and municipalhandle the sales of most corporate and municipal
securities.securities.
 UnderwritingUnderwriting Process of purchasing an issue fromProcess of purchasing an issue from
a firm or government and then reselling the issue toa firm or government and then reselling the issue to
investors.investors.

10. Factors to be considered by InvestorsFactors to be considered by Investors
 Promoters CredibilityPromoters Credibility
 Project DetailsProject Details
 ProductProduct
 Financial dataFinancial data
 Risk factorsRisk factors
 Auditors reportAuditors report

11. Secondary MarketSecondary Market
 The secondary market is thatThe secondary market is that
market in which the buying andmarket in which the buying and
selling of the previously issuedselling of the previously issued
securities is done.securities is done.
 The transactions of the secondaryThe transactions of the secondary
market are generally done throughmarket are generally done through
the medium of stock exchange.the medium of stock exchange.
 The chief purpose of the secondaryThe chief purpose of the secondary
market is to create liquidity inmarket is to create liquidity in
securities.securities.

12.  If an individual has bought someIf an individual has bought some
security and he now wants to sell it, heand he now wants to sell it, he
can do so through the medium of stockcan do so through the medium of stock
exchange to sell or purchase throughexchange to sell or purchase through
the medium of stock exchange requiresthe medium of stock exchange requires
the services of the broker presently,the services of the broker presently,
their are 24 stock exchange in India.their are 24 stock exchange in India.
..

13. Features of Secondary MarketFeatures of Secondary Market
 It Creates LiquidityIt Creates Liquidity
 It Comes After Primary MarketIt Comes After Primary Market
 It Has A Particular PlaceIt Has A Particular Place
 It Encourage New InvestmentsIt Encourage New Investments
 Aids in financing the industryAids in financing the industry
 Ensures safe & fair Dealing( MEDIAEnsures safe & fair Dealing( MEDIA
BROADCASTING)BROADCASTING)

14. Functions of Secondary MarketsFunctions of Secondary Markets
 Provides regular information about the value ofProvides regular information about the value of
security.security.
 Helps to observe prices of bonds and their interestHelps to observe prices of bonds and their interest
rates.rates.
 Offers to investors liquidity for their assets.Offers to investors liquidity for their assets.
 Secondary markets bring together many interestedSecondary markets bring together many interested
parties.parties.
 It keeps the cost of transactions low.It keeps the cost of transactions low.

15. Famous Secondary Markets worldwideFamous Secondary Markets worldwide
 New York Stock ExchangeNew York Stock Exchange
 NASDAQNASDAQ
 The London Stock ExchangeThe London Stock Exchange
 The Tokyo Stock ExchangeThe Tokyo Stock Exchange
 Shanghai Stock ExchangeShanghai Stock Exchange

16. PRIMARY
MARKET
SECONDARY
MARKET

17. The three I`s of Capital MarketThe three I`s of Capital Market
 IssuersIssuers
 Corporate`s issue both debt and equity securitiesCorporate`s issue both debt and equity securities
 Government issue debt securitiesGovernment issue debt securities
 IntermediariesIntermediaries
 InvestorsInvestors
 Individual InvestorIndividual Investor
 Corporate investorCorporate investor
 Foreign venture capital investorForeign venture capital investor

18. INTERMEDIARIESINTERMEDIARIES
 Stock exchangeStock exchange
 BrokersBrokers
 Depositories, depository participantsDepositories, depository participants
 Merchant bankersMerchant bankers
 Bankers to the issueBankers to the issue
 Registrar to the issueRegistrar to the issue
 UnderwritersUnderwriters
 Portfolio managersPortfolio managers

19. CAPITAL MARKETCAPITAL MARKET
INVESTMENTINVESTMENT
 Capital market investment takes place throughCapital market investment takes place through
the bond market and the stock market.the bond market and the stock market.
 The capital market is basically the financial pool inThe capital market is basically the financial pool in
which different companies as well as the governmentwhich different companies as well as the government
can raise long term funds.can raise long term funds.

20. Risk in the Stock MarketRisk in the Stock Market
 Stock prices keep fluctuating over a wide rangeStock prices keep fluctuating over a wide range
unlike the bank deposits or government bonds.unlike the bank deposits or government bonds.
 Research has shown that there are certainResearch has shown that there are certain
psychological factors that shape the stock marketpsychological factors that shape the stock market
prices. Sometimes the market behaves illogically toprices. Sometimes the market behaves illogically to
any economic news.any economic news.
 The stock market prices can be diverted in anyThe stock market prices can be diverted in any
direction in response to press releases, rumors anddirection in response to press releases, rumors and
mass panic.mass panic.
 The stock market prices are also subject toThe stock market prices are also subject to
speculation. In the short run the stock market pricesspeculation. In the short run the stock market prices
may be very volatile due to the occurrences of the fastmay be very volatile due to the occurrences of the fast
market changing events.market changing events.

21. Stock markets & the worldStock markets & the world
economyeconomy The performance of all the world's stock markets isThe performance of all the world's stock markets is
directly responsible for a significant amount of thedirectly responsible for a significant amount of the
world's economic condition - whether it be healthy,world's economic condition - whether it be healthy,
ailing, or trending sideways.ailing, or trending sideways.
 In general, stock market growth is a leading indicatorIn general, stock market growth is a leading indicator
that the state of an economy is flourishing, whilethat the state of an economy is flourishing, while
declining trends indicate of economic slowdown.declining trends indicate of economic slowdown.
 Commentators suggest that stock markets oftenCommentators suggest that stock markets often
predict-what will happen in the economy of thatpredict-what will happen in the economy of that
country around six months later.country around six months later.

22. Thank youThank you