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1. Capital Market

2. Copyright© 2003 John Wiley and Sons, Inc.
Introduction
Capital Market is a planned market where both business
organizations (corporations and pension funds) and
individuals exchange and sell equity securities and debt. A
capital market is expected to be for the distribution and
exchanging of long-term securities. Here, a long term
investment means whose lock-in period is more than a
year.
Sometimes, the government also engage in the capital
market, particularly by the distribution of long-term bond.
As the government are not allowed to issue shares and
equity securities.

3. Copyright© 2003 John Wiley and Sons, Inc.
Functions
Change of savings to finance long term investments
Minimizing information cost and transaction
Motivate proprietor of productive assets
Provide insurance upon price and market risk, through
secondary trading
Expedite trading of securities
Speedy evaluation of financial measures like debentures
and shares
Settlement of transaction on a particular given time or
schedule

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Types of capital Market
The capital market is divided into two parts:
Primary Market- Also know as New Issue Market, it is the first time market
trading of new securities and later available for institutions and individuals. It
supports both private and public offerings. An organisation provides securities
to the public to accumulate funds and satisfy its long term goals. In the
primary market, the securities are issued by either Initial Public Offer (IPO) or
Further Public Offer (FPO). IPO is a process through which an organisation
can make a public offer to the investors for the first time to make an
investment. This trade is between the investors and the original issuer in the
primary market.
Secondary Market – It is called secondary because the securities they have
are old and already have been issued in the primary market for trade. This
trade is between the investors and the original issuer in the primary market.
The trade is between the buyer and seller and the stock exchange facility.

5. Copyright© 2003 John Wiley and Sons, Inc.
Scams and Reforms
What is capital market scam?
• It is basically the fraud done in the capital market
with the investors by manipulating the fact in
ordered to attain enormous profit.
• E.g Harshad mehta 1992 global trade scam.

6. Copyright© 2003 John Wiley and Sons, Inc.
Reforms
The major reforms undertaken in capital market of India includes:-
Establishment of SEBI:The SEBI was set up with the fundamental objective, "to protect
the interest of investors in securities market and for matters connected therewith or
incidental thereto."
Increasing of Merchant Banking Activities: It has proved as a helping hand to factors
related to the capital market
Growing Mutual Fund Industry:The growing of mutual funds in India has certainly
helped the capital market to grow. Public sector banks, foreign banks, financial
institutions and joint mutual funds between the Indian and foreign firms have launched
many new funds
Investor's Protection :It works in educating and guiding investors. It tries to protect the
interest of the small investors from frauds and malpractices in the capital market.

7. Copyright© 2003 John Wiley and Sons, Inc.
Primary Market
The primary market is the financial
market where new securities are
issued and become available for
trading by individuals and
institutions. The trading activities
of the capital markets are separated
into the primary market and
secondary market.

8. Copyright© 2003 John Wiley and Sons, Inc.
Primary market

9. Copyright© 2003 John Wiley and Sons, Inc.
Continue..
The primary market is where companies issue a new security, not
previously traded on any exchange. A company offers securities to the
general public to raise funds to finance its long-term goals. The
primary market may also be called the New Issue Market (NIM). In
the primary market, securities are directly issued by companies to
investors. Securities are issued either by an Initial Public Offer
(IPO) or a Further Public Offer (FPO).
An IPO is the process through which a company offers equity to
investors and becomes a publicly-traded company. Through an IPO,
the company is able to raise funds and investors are able to invest in a
company for the first time. Similarly, an FPO is a process by which
already listed companies offer fresh equity in the company. Companies
use FPOs to raise additional funds from the general public.
.

10. Copyright© 2003 John Wiley and Sons, Inc.
Continue..
previously traded on any exchange. A company offers securities to the
general public to raise funds to finance its long-term goals. The
primary market may also be called the New Issue Market (NIM). In
the primary market, securities are directly issued by companies to
investors. Securities are issued either by an Initial Public Offer
(IPO) or a Further Public Offer (FPO).
An IPO is the process through which a company offers equity to
investors and becomes a publicly-traded company. Through an IPO,
the company is able to raise funds and investors are able to invest in a
company for the first time. Similarly, an FPO is a process by which
already listed companies offer fresh equity in the company. Companies
use FPOs to raise additional funds from the general public

11. Copyright© 2003 John Wiley and Sons, Inc.
Raising Funds from the
Primary Market
Below are some of the ways in which companies raise funds from the primary market:
1. Public Issue
This is the most common way to issue securities to the general public. Through an IPO,
the company is able to raise funds. The securities are listed on a stock exchange for
trading purposes.
2. Rights Issue
When a company wants to raise more capital from existing shareholders, it may offer the
shareholders more shares at a price discounted from the prevailing market price. The
number of shares offered is on a pro-rata basis. This process is known as a Rights Issue.
3. Preferential Allotment
When a listed company issues shares to a few individuals at a price that may or may not
be related to the market price, it is termed a preferential allotment. The company decides
the basis of allotment and it is not dependent on any mechanism such as pro-rata or
anything else.

12. Book Building & Fixed Price Issues
Corporates may raise capital in the primary market by way
of an initial public offer, rights issue or private placement.
An Initial Public Offer (IPO) is the selling of securities to
the public in the primary market. This Initial Public
Offering can be made through the fixed price method,
book building method or a combination of both.
There are two types of Public Issues:
Copyright© 2003 John Wiley and Sons, Inc.

13. Continue…
Copyright© 2003 John Wiley and Sons, Inc.
Issue Type Offer Price Demand Payment Reservations
Fixed Price
Issues
Price at which the
securities are
offered and
would be allotted
is made known in
advance to the
investors
Demand for the
securities offered
is known only
after the closure
of the issue
100 %
Applications
Supported by
Blocked Amount
50 % of the
shares offered are
reserved for
applications
below Rs. 2 lakh
and the balance
for higher amount
applications.
Book Building Is
sues
A 20 % price
band is offered by
the issuer within
which investors
are allowed to bid
and the final price
is determined by
the issuer only
after closure of
the bidding.
Demand for the
securities offered
, and at various
prices, is
available on a
real time basis on
the BSE website
during the
bidding period..
100 %
Applications
Supported by
Blocked Amount.
50 % of shares
offered are
reserved for
QIBS, 35 % for
Non Retail and
15% for Retail
Investors

14. What is primary issues?
A primary offering is the first issuance of
stock from a private company for public
sale. The first public sale of stock is called
an initial public offering (IPO). It is a means
for a private company to raise equity capital
through financial markets to expand its
business operations.
Copyright© 2003 John Wiley and Sons, Inc.

15. Resource mobilization from the
primary market
The primary market is a market for new issues.
... Funds are mobilised in the prima The primary
market is a market for new issues.
... Funds are mobilised in the primary market through
prospectus, rights issues, and private placement. Bonus
issue is also one of the ways to raise capital but it does not
bring in any fresh capital.ry market through prospectus,
rights issues, and private placement. Bonus issue is also
one of the ways to raise capital but it does not bring in any
fresh capital.
Copyright© 2003 John Wiley and Sons, Inc.

16. Continue…
Resource mobilization refers to all
activities involved in securing new and
additional resources for your organization.
It also involves making better use of, and
maximizing, existing resources. Resource
mobilization is often referred to as 'New
Business Development'.
Copyright© 2003 John Wiley and Sons, Inc.

17. Mutual Funds
A mutual fund is a company that brings
together money from many people and
invests it in stocks, bonds or other assets.
The combined holdings of stocks, bonds or
other assets the fund owns are known as its
portfolio. Each investor in the fund owns
shares, which represent a part of these
holdings
Copyright© 2003 John Wiley and Sons, Inc.

18. Copyright© 2003 John Wiley and Sons, Inc.