CAPITAL MARKET

Presented by,Group- 4

Financial Markets

FINANCIAL MARKETS

ORGANIZED MARKET

CAPITAL MARKET

MONEY MARKET

UNORGANIZED MARKETMONEY

LENDERS,INDIGENEOUS BANKERS

Capital Markets

Provided resources needed by medium and large scale industries.

Purpose for these resourcesExpansionCapacity ExpansionInvestmentsMergers and Acquisitions

Deals in long term instruments and sources of funds

Main Activity

Functioning as an institutional mechanism to channelize funds from those who save to those who needed for productive purpose.

Provides opportunities to various class of individuals and entities.

SIGNIFICANCE

• Growth of savings,• Efficient allocation of investment resources,• Better utilization of the existing resources

Capital market instrument

• Debt• Prefernce share• Equity• ADRs/GDRs• Derivatives

Primary market

• The primary market is that part of the capital markets that deals with the issue of new securities

• The primary market provides the channel for creation of funds through issuance of new securities by companies, governments, or public institutions.

Types of issues in Primary market

• Initial public offer (IPO)• Follow-on public offer (FPO)• Rights offer• Preferential issue/ bonus issue/• Composite issue

Secondary market

• The secondary market is the financial market where previously issued securities and financial instruments such as stocks, bonds, options, and futures are traded

Structure of Capital MarketsPrimary Markets Secondary Markets

When companies need financial resources for its expansion, they borrow money from investors through issue of securities.

The place where such securities are traded by these investors is known as the secondary market.

Securities issued a) Preference Sharesb) Equity Sharesc) Debentures

Securities like Preference Shares and Debentures cannot be traded in the secondary market.

Equity shares is issued by the under writers and merchant bankers on behalf of the company.

Equity shares are tradable through a private broker or a brokerage house.

People who apply for these securities are: a) High networth individualb) Retail investorsc) Employeesd) Financial Institutionse) Mutual Fund Housesf) Banks

Securities that are traded are traded by the retail investors.

One time activity by the company. Helps in mobilising the funds for the investors in the short run.

Stock exchange

• A marketplace in which securities, commodities, derivatives and other financial instruments are traded. The core function of a stock exchange is to ensure fair and orderly trading, as well as efficient dissemination of price information for any securities trading on that exchange

Leading stock exchanges:

• Bombay Stock Exchange Limited • National Stock Exchange • New York Stock Exchange NYSE) • NASDAQ • London Stock Exchange

Functions of Stock Exchanges

• Liquidity and marketability of securities • Fair price determination • Source of long-tern funds • Helps in capital formation • Reflects general state of economy

Capital Market Intermediaries

Merchant Banks

• mostly in international finance.

• long-term loans for companies.

• no regular banking services to the general public.

• (e.g.) Goldman Sachs etc..

Custodian

• customers' securities for safekeeping. • electronic or physical form.

• tend to be large and reputable firms.

Stock brokers

• Buys and sells shares and other securities

• Sub-brokers

• Stock brokers- Sharekhan, Angel broking ltd, Kotak Securities etc..

Foreign Institutional Investors (FII)

• registered in a country outside of the one in which it is currently investing.

• include hedge funds, insurance companies, pension funds and mutual funds.

• (e.g.) Kotak Mahindra (UK)ltd, Morgan Stanley investment management etc..

Mutual Fund

• a pool of funds collected from many investors

• portfolio is structured

(e.g.) Kotak Mahindra, HDFC mutual fund etc..

Registrar

• An institution or organization that is responsible for keeping records of bondholders and shareholders.

Venture Capital

• investors seeking private equity stakes in startup and small- and medium-size enterprises.

• high-risk/high-return opportunities.

• (e.g.) Reliance venture, DFJ India etc..

Underwriter

• an intermediary between the issuing company and the investors

• buys the newly issued securities from the company and sells them to investors on the secondary market.

Portfolio Managers

• persons responsible for investing

• implements investment strategy

• manages the day-to-day portfolio trading.

• (e.g.) UTI etc..

ORGANISATIONS

BSE(Bombay Stock Exchange)NSE(National Stock Exchange)

National Securities Depository Limited (NSDL) and Central Securities Depository Limited

(CSDL)