The document discusses various topics related to capital markets, including: 1) It defines the primary and secondary capital markets and the types of financial instruments traded in each. 2) It describes the nature of capital markets, including that they deal in long-term securities, perform trade-off functions, and help with capital formation and liquidity. 3) It provides an overview of the Indian capital market, its evolution, and growth trends in the number of stock exchanges and listed companies. 4) It discusses different types of capital market reports such as annual 10-K reports, quarterly 10-Q reports, 8-K reports for material events, and proxy statements.

1. By:- pranjal varmaBy:- pranjal varma
Roll no:-13011114Roll no:-13011114
Specialization:- financeSpecialization:- finance
CAPITAL MARKETCAPITAL MARKET

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. Nature of capital marketNature of capital market
The nature of capital market is brought out by theThe nature of capital market is brought out by the
following facts:following facts:
 It Has Two SegmentsIt Has Two Segments
 It Deals In Long-Term SecuritiesIt Deals In Long-Term Securities
 It Performs Trade-off FunctionIt Performs Trade-off Function
 It Creates Dispersion In Business OwnershipIt Creates Dispersion In Business Ownership
 It Helps In Capital FormationIt Helps In Capital Formation
 It Helps In Creating LiquidityIt Helps In Creating Liquidity

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 collected from this market is generally usedThe collected from this market is generally used
by the companies to modernize the plant,by the companies to modernize the plant,
machinery and buildings, for extendingmachinery and buildings, for extending
business, and for setting up new business unit.business, and for setting up new 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:It Has Various Methods Of Float Capital: FollowingFollowing
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. Secondary MarketSecondary Market
 The secondary market is that market inThe secondary market is that market in
which the buying and selling of thewhich the buying and selling of the
previously issued securities is done.previously issued securities is done.
 The transactions of the secondary marketThe transactions of the secondary market
are generally done through the medium ofare generally done through the medium of
stock exchange.stock exchange.
 The chief purpose of the secondary marketThe chief purpose of the secondary market
is to create liquidity in securities.is to create liquidity in securities.

10.  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.
..

11. 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

12. CAPITAL MARKET RISKCAPITAL MARKET RISK
 Investment in long term financial instrumentsInvestment in long term financial instruments
is accompanied by high capital market risks.is accompanied by high capital market risks.
Since there are two types of capital markets- theSince there are two types of capital markets- the
stock market and the bond market.stock market and the bond market.
 So risks are present in both the market.So risks are present in both the market.

13. Risk in the Stock MarketRisk in the Stock Market
 Stock prices keep fluctuating over a wideStock prices keep fluctuating over a wide
range unlike the bank deposits or governmentrange unlike the bank deposits or government
bonds.bonds.
 The efficient market hypothesis shows theThe efficient market hypothesis shows the
effect of fundamental factors in changing theeffect of fundamental factors in changing the
price of the stock market.price of the stock market.

14.  The Efficient Market Hypothesis shows that allThe Efficient Market Hypothesis shows that all
price movements are random whereas there areprice movements are random whereas there are
plenty of studies that reflect the fact that there is aplenty of studies that reflect the fact that there is a
specific trend in the stock market prices over aspecific trend in the stock market prices over a
period of time.period of time.
 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.prices.

15.  Sometimes the market behaves illogically to anySometimes the market behaves illogically to any
economic news.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.

16. Risk in the Bond MarketRisk in the Bond Market
 Capital market risk in the bond market arises due toCapital market risk in the bond market arises due to
interest rate changes. There is an inverse relationshipinterest rate changes. There is an inverse relationship
existing between the interest rate and the price of theexisting between the interest rate and the price of the
bond. Hence the bond prices are sensitive to thebond. Hence the bond prices are sensitive to the
monetary policy of the country as well as economicmonetary policy of the country as well as economic
changes.changes.

17. INDIAN CAPITAL MARKETINDIAN CAPITAL MARKET
 The Indian Capital Market is one of the oldest capital
markets in Asia which evolved around 200 years ago.
Chronology of the Indian capital markets
>1830s: Trading of corporate shares and stocks in
Bank and cotton Presses in Bombay.
>1850s: Sharp increase in the capital market
brokers owing to the rapid development of commercial
enterprise.

18. >1860-61: Outbreak of the American Civil
War and ' Share Mania ' in India.
>1894: Formation of the Hamada Shares
and Stock Brokers Association.
>1908: Formation of the Calcutta Stock
Exchange Association.

19. The pattern of growth in the Indian
capital markets in the post
independence regime can be analyzed
from the following graphs:

21. From the above graph we find that the
number of stock exchanges in India
increased at a crawling pace till 1980
but witnessed a sharp rise thereafter
till 1995.

22. The following diagram shows the trend
in the no. of listed companies
participating in the Indian Capital
Market. Here again we register a sharp
rise after 1980. The number of stocks
issued by the listed companies also
shows a similar trend:

25. CAPITAL MARKET REPORTCAPITAL MARKET REPORT
 The Capital Market Report is prepared byThe Capital Market Report is prepared by
the capital market analysts and is of variousthe capital market analysts and is of various
types.types.
 There are four different kinds of capital marketThere are four different kinds of capital market
reports:reports: >>10-K Reports,
>10-Q Reports,
>Form 8-K Reports,
>the Proxy Statements .

26. 10-K Reports
 This is a kind of annual report of the company that
contains information of the company's business,
finances and management.
 This informs us about the bylaws of the company, other
legal documents and the lawsuits that the company may
have a hand in.
10-Q Reports or the Quarterly Reports10-Q Reports or the Quarterly Reports
 The quarterly reports are the abridged form of the
annual reports.
 They are issued at an interval of three months.
 They consist of financial statements and list the
material events that have occurred in the company.

27. Form 8 –K Report
 The companies that are publicly traded are
required to maintain the Form 8-K where they
record any material event that might have
affected the financial status of the company
Proxy Statements
 The proxy statement consists of business issues
that need to be discussed in the meeting and a
ballot for voting for the purpose of forming the
new Board of directors.

28. CAPITAL MARKETCAPITAL MARKET
INVESTMENTINVESTMENT
 Capital market investment takes place through
the bond market and the stock market.
 The capital market is basically the financial pool in
which different companies as well as the government
can raise long term funds.
 Capital market investment that takes place through
the bond and the stock market may be elucidated in
the following heads.

29. Capital market investments in the stock market
 The stock market is basically the trading
ground capital market investment in the following:
i) Company’s stocks
ii) Derivatives
iii) Other securities
 The capital market investments in the stock market
take place by:
1) Small individual stock investors
2) Large hedge fund traders.
 The capital market investments can occur either in:
1) The physical market by a method known as the
open outcry.

30. 2) Trading can also occur in the virtual exchange where
trading is done in the computer network.
 The investors in the stock market have the liberty to
buy or sell the stock that they are holding at their
own discretion unlike the case of government
securities, bonds or real estate.
 The stock exchanges basically function as the clearing
house for such liquid transactions.
 The capital market investments in the stock market
are also done through the derivative instruments like
the stock options and the stock futures.

31. Capital Market Investments in the Bond Market
 The bond market is a financial market where theThe bond market is a financial market where the
participants buy and sell debt securities.participants buy and sell debt securities.
 The bond market is also differently known as the debt,The bond market is also differently known as the debt,
credit or fixed income market.credit or fixed income market.
 There are different types of bond markets based on theThere are different types of bond markets based on the
different types of bonds that are traded. They are:different types of bonds that are traded. They are:
 Corporate,Corporate,
 Government and agency, Government and agency,
 Municipal,Municipal,
 Bonds backed by mortgages & assets,Bonds backed by mortgages & assets,
 Collateralized Debt Obligation.Collateralized Debt Obligation.

32.  The bonds, except for the corporate bonds do not
have formal exchanges but are traded over-the-
counter.
 Individual investors are attracted to the bond market
and make investments through the bond funds,
closed-end-funds or the unit investment trusts.
 Another way of investing directly in the bond issue is
the Exchange-traded-funds.
 The capital market investment in the bond market is
done by:
 Institutional investors
 Governments, traders and
 Individuals.