Capital Markets in India

1. Financial Markets
Concept
Features
2. Capital Markets
Concept
Functions
Types
3. Primary & Secondary
Market

Financial Markets
Financial Market The mechanism
enabling the participants to deal in
financial claims
E.g. Capital Market, Money market,
Primary & secondary market
Financial Instrument- A claim against
a person or institutions for payment at a
future date or a periodic payment of a
sum of money by way of interest or
dividend.
E.g. bank deposit, units of mutual fund,
insurance policies, shares, bonds etc.

Characteristics of
financial market
1. Provides a common platform to
investors and entrepreneurs
2. Large volume of financial
transactions
3. Availability of multiple segments
like primary-secondary, stockbond etc.
4. Highly volatile
5. Dominated by intermediaries

Characteristics of financial market.. Contd.

6. Has an impact on non-financial markets

7. Similar markets exist worldwide and
keep influencing one-another
8. Need to be monitored by regulatory
bodies
9. In the last 15-20 yrs. common man is
attracted towards financial market to a
large extent

Financial Market

Capital Market

Primary Market
Long term

Money Market

Secondary Market
Short term

Why entrepreneurs
approach capital
market? ?
1. Possibility of a financial
institution extending loans
to the company
2. Pros & cons of financial
leverage
3. Debt equity ratio
4. Pros & cons of issuing equity
capital

Capital market
Concept
A capital market is a financial
market for the exchange of long
term securities (both, debt and
equity)
Functions
1. To mobilize long term savings
to long term investments
2. To provide risk capital to
industries (in the form of equity
capital); as a consequence to

Functions Contd.

3. To provide liquidity to the

investors by creating secondary
markets for selling the securities
4. To build and spread correct
information across all the
intermediaries
5. To lower the cost of transactions
to the extent possible
6. To build competitive pricing
mechanism for the purpose of
efficient capital allocation

Functions Contd.
7. To provide a mechanism to the
foreign investors to invest in India
8. To supply the funds for financing
the infrastructure development to
government
9. To support the disinvestment
policy of the Government by
floating securities of government
companies getting privatised into

Types of capital market

Capital Market

Primary Market

Secondary Market

For new issues

For Trading

Primary Market

What?
Primary Market is a mechanism
JointPrivate
Stock Company
Company
through which corporates raise capital.

Secondary Market

A secondary market is a place where

the securities issued through the
primary markets are traded.

Operates through the network of stock

exchanges.

Intermediaries in Capital
Market
1.
2.
3.
4.
5.
6.
7.
8.

Lead manager to the issue

Registrar & Transfer agent
Underwriter
Legal advisor
Banker to the issue
Depository
Depository participant
Market Maker

Intermediaries in Capital
Market
1. Lead manager to the issue
Also known as (Book Running Lead
Managers BRLM)
Main function is merchant banking
E.g. Karvy consultants, IDBI capital
market services etc.

Intermediaries in Capital
Market
2. Registrar & Transfer agent :Provides services
like
. Registration of shares in the name of the
shareholder,
. Maintaining records
. Share transfers
. Dividend payments and all other investor
related activities
. Eg. TSR Dara Shaw, 3i info, Kotak securities
etc.

Intermediaries in Capital
Market
3. Underwriter
4. Legal advisor
5. Bankers to the issue : Scheduled bank
certified by SEBI to act in this capacity.
Services of banker to the issue :
. Acceptance of applications along with
application money from investors
. Refund of application money in case of nonallotment
6. Depository
7. Depository participant
8. Market Maker

Instruments in capital
markets
Student Activity
Make a list of the instruments dealt in the
capital markets in India.
Explain each one in 3-4 lines.
Present in the next class.
Each student should submit the written
assignment on Monday.
(HINT: Equity Shares, Preference shares,
various types of debentures, various
types of bonds etc.)