OVER VIEW OF CAPTIAL MARKET IN INDIA

 

•     FINANCIAL SERVICES AND MARKET
DR SHASHI AGGARWAL

•     CAPITAL MARKETS

1. CAPITAL MARKETS ARE FINANCIAL MARKETS ARE FOR THE BUYING AND SELLING OF LONG TERM DEBT OR EQUITY BACKED SECURITIES
2. THE BASIC ROLE OF THE CAPITAL MARKET IS TO RAISE LONG TERM FUNDS FOR GOVERNMENTS,BANKS AND CORPORATIONS WHILE PROVIDING A PLATFORM FOR THE TRADING OF SECURITIES
3. CAPITAL MARKET  FUNCTION AS LINK BETWEEN SAVERS AND INVESTORS
4. IMPORTANT ROLE IN MOBILIZING THE SAVING AND DIVERTING THEM IN PRODUCTIVE INVESTMENT
5. CAPITAL MARKET PLAYS AN IMPORTANT ROLE IN TRANSFERRING THE FINANCIAL RESOURCES FROM SURPLUS AND WASTEFUL AREA TO DEFICIT AND PRODUCTIVE AREAS THUS INCREASING THE PRODUCTIVITY AND PROSPERITY OF THE COUNTRY AND PROMOTES THE PROCESS OF ECONOMIC GROWTH IN THE COUNTRY.
6. CAPITAL MARKETS
7. CAPITAL MARKET IS THE HEART OF AN ECONOMY THROUGH WHICH THE SAVING ARE CHANNELIZED INTO EFFECTIVE LONG TERM INVESTMENTS
8. A WELL DEVELOPED CAPITAL MARKET IS BENEFICIAL BOTH FOR THE INVESTOR AS WELL AS FOR THE CORPORATE SECTOR AND MOST IMPORTANT PARAMETER FOR EVALUATING THE HEALTH OF THE ECONOMY.
9. ENGINE FOR ECONOMIC GROWTH.PROVIDING AN EFFICIENT MEANS OF RESOURCES MOBILIZATION AND ALLOCATIONS

•     EVOLUTION OF THE CAPITAL MARKET

1. THE INDIAN CAPITAL MARKET IS ONE OF THE OLDEST CAPITAL MARKETS IN THE WORLD
2. DATES BACK TO THE 18 TH CENTURY WHEN THE SECURITIES OF THE EAST INDIA COMPANY WERE TRADED IN MUMBAI AND KOLKATTA
3. HOWEVER THE ORDERLY GROWTH OF THE CAPITAL MARKET BEGAN WITH THE SETTING UP OF THE STOCK EXCHANGE OF BOMBAY IN JULY 1875 AND AHMADABAD STOCK EXCHANGE IN 1884
4. EVENTUALLY 19 OTHER STOCK EXCHANGES WERE SET UP IN DIFFERENT PARTS OF THE COUNTRY

 

5. INDIAN CAPITAL MARKET BEFORE 1990
6. INDIA’S CAPITAL MARKET WAS DORMANT TILL MID 1980
7. THE LONG TERM FINANCING WERE MET BY THE DEVELOPMENT FINANCIAL INSTITUTES NAMELY IDBI,IFCI AND ICICI AS WELL AS BY OTHER INVESTMENT INSTITUTION LIKE UTI,LIC,GIC ETC
8. WORKING CAPITAL NEEDS WERE MET BY THE COMMERCIALS BANKS THROUGH AN ELABORATE NET WORK OF BANK BRANCHES SPREAD ALL OVER THE COUNTRY
9. CAPITAL MARKET ACTIVITIES WERE LIMITED MAINLY DUE TO THE EASY AVAILABILITY OF LOANS FROM THE BANKS AND FINANCIAL INSTITUTIONS AND ADMINISTERED OF INTEREST RATE’
10. THREE IMPORTANT LEGISLATION CAPITAL ISSUES ( CONTROL ) ACT 1947,SECURITIES CONTRACT ( REGULATIONS ACT ,1956) AND COMPANIES ACT 1956 ( NOW COMPANIES ACT 2013)

·         INDIAN CAPITAL MARKET BEFORE 1990

1. THE PRICING OF THE PRIMARY ISSUE WAS DECIDED BY THE OFFICE OF THE CONTROLLER  OF THE CAPITAL ISSUES
2. OUTCRY SYSTEM WAS USED FOR TRADING AT THE STOCK EXCHANGE
3. INDIAN CAPITAL MARKET AFTER 1990

1. THE CAPITAL MARKET REFORMS WERE INITIATED IN BIG WAY FROM 1991-92 ONWARD
2. THE AIM WAS  TO IMPROVE MARKET EFFICIENCY,ENHANCE TRANSPARENCY,CHECKING UNFAIR TRADE PRACTICES  SO THAT TO MEE INTERNATIONAL STANDARD
3. THE CAPITAL ISSUES CONTROLS ACT 1947 WAS REPEALED IN MAY 1992 AND THE OFFCIE CONTROLLER OF CAPITAL ISSUES WAS ABOLISHED IN THE SAME YEAR
4. THE NSE WAS INCORPORATED IN 1992 AND WAS GIVEN RECOGNITION AS A STOCK EXCHANGE IN APRIL 1993
5. PLAYING A LEAD ROLE AS CHANGE AGENT IN TRANSFORMING THE INDIAN CAPITAL MARKET TO ITS PRESENT FORM

6.       THE SECURITIES AND EXCHANGE BOARD OF INDIA ( SEBI) WAS SET UP IN 1988 AND ACQUIRED THE STATUTORY STATUS IN 1992

·         SINCE 1992,SEBI HAS EMERGED  AS AN AUTONOMOUS AND INDEPENDENT STATUTORY BODY WITH DEFINITE MANDATES SUCH AS :

1.       TO PROTECT THE INTERESTS OF INVESTOR IN SECURITIES

2.       TO PROMOTE THE DEVELOPMENT OF SECURITIES MARKET’

3.       TO REGULATE THE SECURITIES MARKET

SEBI HAS BEEN EXERCISING POWERS UNDER:

1.       SECURITIES CONTRACT REGULATIONS ACT 1956

2.       SECURITIES AND EXCHANGE BOARD OF INDIA

3.       DEPOSITORIES ACT,1966 AND DELEGATED POWERS OF THE INDIAN COMPANIES ACT

•     FUNCTIONS OF THE CAPITAL MARKET

1.       TO MOBILIZE THE RESOURCES FOR INVESTMENTS

2.       TO FACILITATE BUYING AND SELLING OF SECURITIES

3.       TO FACILITATE THE PROCESS OF EFFICIENT PRICE DISCOVERY

4.       TO FACILITATE SETTLEMENT OF THE TRANSACTIONS WITH THE PREDETERMINED TIME SCHEDULE

v    FEATURES OF CAPITAL MARKET

1.       DEALING IN MEDIUM AND LONG TERM SECURITIES

2.       DEALING IN MARKETABLE AND NON MARKETABLE: MARKETABLE SECURITIES ARE THOSE SECURITIES ARE THOSE WHICH CAN BE TRANSFERRED LIKE SHARE,DEBENTURES ETC. NON MARKETABLE SECURITIES LIKE TERM DEPOSITS AND LOANS AND ADVANCES

3.       CAPITAL MARKET COMPRISE  INDIVIDUAL INVESTORS LIKE GENERAL PUBLIC AS WELL AS INSTITUTIONAL INVESTORS INCLUDE MUTUAL FUNDS,LIC ETC

4.       INCLUDES BOTH PRIMARY AND SECONDARY MARKET

5.       OPERATIONS IN THE CAPITAL MARKET IS CONDUCTED WITH THE HELP OF INTERMEDIARIES LIKE MERCHANT BANKERS,SUB BROKERS,COLLECTION BANKERS ETC

6.       DIFFERENCE BETWEEN CAPITAL AND MONEY MARKET

•     DIFFERENCE BETWEEN CAPITAL MARKET AND MONEY MARKET

•     MONEY MARKET

1.       MARKET FOR SHORT TERMS LOANABLE FUNDS  FOR A PERIOD NOT EXCEEDING ONE YEAR

2.       MARKET SUPPLIES FUNDS FOR FINANCING CURRENT BUSINESS OPERATIONS,WORKING CAPITAL REQUIREMENTS,SHORT PERIOD OF REQUIREMENTS

3.       THE INSTRUMENTS DEALT IN MONEY MARKET : BILLS OF EXCHANGE,TREASURY BILLS,COMMERCIAL PAPERS,CERTIFICATE OF DEPOSITS

4.       EACH SINGLE MONEY MARKET INSTRUMENT IS OF LARGE AMOUNT. EACH CD OR CP IS FOR MINIMUM OF RS 25 LACS

5.       CENTRAL BANKS AND COMMERCIAL BANKS ARE THE MAJOR INSTITUTION IN THE MONEY MARKET

6.       MONEY MARKET INSTRUMENT GENERALLY DO NOT HAVE SECONDARY MARKETS

7.       TRANSACTIONS TAKES PLACE OVER THE OVER THE PHONE AND NO FORMAL PLACE

8.       TRANSACTIONS HAVE NOT TO BE CONDUCTED WITH THE HELP OF BROKERS

 

 

 

CAPITAL MARKET

1. MARKET FOR LONG TERM FUNDS EXCEEDING FOR A PERIOD OF ONE YEAR
2. LONG TERM REQUIREMENTS
3. DEALS WITH THE INSTRUMENTS LIKE EQUITY SHARES,DEBENTURES,GOVERNMENT BONDS
4. EACH SINGLE CAPITAL MARKET INSTRUMENT IS OF SMALL AMOUNT.EACH SHARE VALUE IS RS 10 AND EACH DEBENTURE VALUE IS RS 100
5. DEVELOPMENT BANKS AND INSURANCE COMPANIES PLAY A DOMINANT ROLE IN THE CAPITAL MARKET
6. GENERALLY HAVE A SECONDARY MARKET
7. FORMAL PLACE THROUGH STOCK EXCHANGE
8. TO BE CONDUCTED THROUGH AUTHORISED DEALERS

 

•     ROLE OF CAPITAL MARKET

1.       HELPS CORPORATES,INDUSTRIAL ORGANIZATIONS,FINANCIAL INSTITUTIONS.TRUSTS AND GOVERNMENTS TO GET LONG TERM LOANS

2.       CHANNELIZING THE SAVING OF PEOPLE INTO PRODUCTIVE USES

3.       CAPITAL FORMATION IS THE NET ADDITION TO THE EXISTING STOCK OF CAPITAL FORMATION. IT INCREASES CAPITAL FORMATION

4.       PROVIDES INCOME TO THE INVESTORS

5.       THE CAPITAL MARKET FACILITATES LENDING TO THE  CORPORATES AND GOVERNMENT AND ENCOURAGES INVESTMENT. PROVIDES INVESTMENT FACILITIES THROUGH BANKING AND NON BANKING INSTITUTES.

6.       PROVIDES LIQUIDITY TO INVESTMENT

7.       PROVIDE AN OPPORTUNITY TO FOREIGN INSTITUTIONAL INVESTORS AND FOREIGN INDIVIDUAL INVESTORS

•     STRUCTURE OF CAPITAL MARKET IN INDIA

•     STRUCTURE OF CAPITAL MARKET IN INDIA

•     INDUSTRIAL SECURITIES MARKET

•     MARKET FOR INDUSTRIAL SECURITIES NAMELY :

•                 EQUITY SHARES

•                 PREFERENCE SHARES

•                 DEBENTURES OR BONDS

MARKET WHERE INDUSTRIAL CONCERN RAISE THEIR CAPITAL OR DEBT BY ISSUING APPROPRIATE INSTRUMENTS

IS OF TWO TYPES

1.       PRIMARY MARKET “ ALSO CALLED NEW ISSUE MARKET. THE PRIMARY MARKET DEALS WITH THOSE SECURITIES WHICH ARE ISSUED TO PUBLIC  FOR THE FIRST TIME

2.       SECONDARY MARKET :MARKET FOR SECONDARY SALE OF SECURITIES. CONSISTS OF ALL STOCK EXCHANGES

•     GOVERNMENT SECURITIES MARKET

1.       ALSO CALLED GILT EDGED SECURITIES MARKET

2.       WHERE GOVT SECURITIES ARE TRADED

3.       SHORT TERM SECURITIES ARE TRADED IN MONEY MARKET

4.       SECURITIES ISSUED BY THE CENTRAL GOVERNMENT,STATE GOVERNMENT,SEMI GOVERNMENT

5.       GOVERNMENT SECURITIES ARE SOLD THROUGH THE PUBLIC DEBT OFFICE OF RBI WHILE TREASURY BILLS ARE THROUGH AUCTIONS

6.       GOVERNMENT SECURITIES ARE ISSUED IN THE DENOMINATION OF RS 100

7.       INTEREST IS PAYABLE HALF YEARLY AND ALSO CARRY TAX EXEMPTIONS

8.       LONG TERM LOAN MARKET

1.       TERM LOANS MARKET :- MANY INDUSTRIAL FINANCING INSTITUTIONS HAVE BEEN CREATED BY THE GOVERNMENT AT THE NATIONAL AND REGIONAL LEVEL TO SUPPLY LONG TERM FUNDS

2.       MORTGAGE MARKET :-A MORTGAGE LOAN IS LOAN AGAINST THE SECURITIES OF IMMOVABLE PROPERTY. THE TRANSFER OF INTEREST IN SPECIFIC MORTGAGE.MAY BE EQUITABLE MORTGAGE OR LEGAL MORTGAGE. EQUITABLE MORTGAGE : MERE DEPOSIT OF TITLE DEEDS. LEGAL MORTGAGE : TITLE IS LEGALLY TRANSFERRED TO THE LENDER BY THE BORROWER

3.       FINANCIAL GUARANTEES MARKET: A GUARANTEE MARKET IS WHERE FINANCE IS PROVIDED AGAINST THE GUARANTEE OF REPUTED PERSON IN THE FINANCIAL CIRCLE

1.       PERFORMANCE GUARANTEE : COVERS THE PAYMENT OF THE EARNEST MONEY,RETENTION MONEY,ADVANCE PAYMENTS,NON COMPLETION OF THE CONTRACT

2.       FINANCIAL GUARANTEE COVER THE ONLY FINANCIAL CONTRACTS

•     IN INDIA : DEFERRED PAYMENTS TO IMPORTS AND EXPORTS,MEDIUM AND LONG TERM LOANS RAISED,LOANS ADVANCED BY BANKS AND OTHER FINANCIAL INSTITUTIONS

•     SEGMENTS OF CAPITAL MARKET

•               PRIMARY MARKET:

1. A MARKET WHERE NEW SECURITIES ARE BOUGHT AND SOLD FOR THE FIRST TIME IS CALLED THE NEW ISSUE MARKET OR IPO
2. THE FIRST PUBLIC OFFERING OF EQUITY SHARES OR CONVERTIBLE SECURITIES BY A COMPANY WHICH IS FOLLOWED BY THE LISTING OF A COMPANY’S SHARES ON A STOCK EXCHANGE IS KNOWN AS INITIAL PUBLIC OFFERING
3. THE PRIMARY MARKET ALSO INCLUDES THE ISSUE OF FURTHER CAPITAL BY COMPANIES WHOSE SHARES ARE LISTED ON THE STOCK EXCHANGE
4. DIFFERENT TYPES OF INTERMEDIARIES:- MERCHANT BANKERS,BROKERS,BANKERS TO ISSUE,DEBENTURE TRUSTEE,PORTFOLIO MANAGERS,REGISTRARS TO ISSUES,SHARE TRANSFER EGENTS

 

• SEGMENT

•     SECONDARY MARKET:

1.       MARKET IN WHICH INVESTOR PURCHASES A SECURITY FROM ANOTHER INVESTOR RATHER THAN THE ISSUER SUBSEQUENT TO THE ORIGINAL ISSUANCE IN THE PRIMARY MARKET

2.       SECONDARY STOCK EXCHNAGES AND OVER THE COUNTER MARKET

 

•     PRIMARY MAREKT AND SECONDARY MARKET

•     SIMILARTIES :

1.       THE SECURITIES ISSUED IN THE PRIMARY MARKETS ARE INVARIABLY LISTED ON RECOGNIZED STOCK EXCHANGE PLATFORM FOR DEALING IN THEM. TRADING IN SECONDARY MARKET BE CARRIED THROUGH STOCK EXCHANGE PLATFORM

2.       LISTING PROVIDES LIQUIDITY AND MARKETABILITY TO SECURITIES

3.       STOCK EXCHANGE ENSURES THAT THERE IS ONTINUOUS COMPLIANCE BY THE ISSUER COMPANY OF THE CLASUES PROVIDED IN THE LISTING AGREEMENT

•     DIFFERENCE

•     PRIMARY MARKET

1.       WHERE NEW SECURITIES ARE ISSUED BY THE FIRM

2.       SOLD DIRECTLY TO THE PUBLIC

3.       COMPANY IS DIRECTLY INVOLVED IN THE TRANSACTION

4.       NEW SECURITIES

5.       ADDITIONAL FUNDS TO ISSUING COMPANY

·         SECONDARY MARKET

1.       MARKET WHERE STOCKS ALREADY ISSUED ARE TRADED

2.       NO INVOLVEMENT AS THE TRANSACTIONS OCCUR BETWEEN INVESTORS

3.       MARKET FOR ALREADY ISSUED SECURITIES

4.       NO AS THE COMPANY IS NOT INVOLVED IN THE TRANSACTIONS

•     PARTICIPANT IN THE CAPITAL MARKET

1.       INVESTORS:- RETAIL INVESTORS,INSTITUTIONAL INVESTORS AND FOREIGN PORTFOLIO INVESTOR

2.       STOCK EXCHANGE

3.       DEPOSITORY : WHICH HOLD SECURITIES IN ELECTRONIC FORM AT THE REQUEST OF THE INVESTOR THROUGH A REGISTERED DEPOSITORY PARTICIPANT. TWO DEPOSITORY NAMELY NATIONAL SECURITIES DEPOSITORY LIMITED AND CENTRAL DEPOSITORY SERVICE INDIA LIMITED

4.       INTERMEDIARY ARE THOSE ENTITIES WHICH OFFER VARIOUS SERVICES IN RELATIONS TO THE CAPITAL MARKETS SUCH AS STOCK BROKERS,MERCHANT BANKERS ETC

•     INSTRUMENTS OF CAPITAL MARKETS

•     REGULATORY

1.       THE SECURITIES EXCHANGE BOARD OF INDIA ( SEBI) ACT.1992 REGULATES THE FUNCTIONING OF INDIAN STOCK EXCHANGES

2.       REGISTERING AND REGULATING THE WORKING OF COLLECTIVE INVESTMENT SCHEMES INCLUDING MUTUAL FUNDS

3.       PROMOTING INVESTOR’S EDUCATION AND TRAINING OF INTERMEDIARIES

4.       PROHIBITS INSIDER TRADING

5.       REGULATES THE ACQUISITION OF SHARES AND TAKEOVERS

6.       BARRING FRAUDULENT AND UNFAIR TRADE PRACTICES