The document provides an overview of capital markets, including its definition, objectives, key components and functions. It discusses the primary and secondary markets, and the major players in capital markets such as brokers, investment bankers, stock exchanges, underwriters, credit rating agencies, corporations, banks/financial institutions, and foreign investors.

1. Capital Market

2. Capital Market
• Topics
– Concept
– Functions
– Types of Capital Markets
– Introduction to different players of Capital Market

3. Capital Market
Concept

4. Capital Market- Definition
• Definition – A capital market is a market for
securities(debt or equity), where business
enterprises(companies) and governments
can raise long-term funds. It is defined as a
market where money is provided for periods
longer than a year.
• The Capital Market includes the stock
market(equity securities) and the bond
market(debt).

5. Capital Market- Objectives
• Objectives : The objectives of a Capital
Market is twofold –
– It ensures best possible co-ordination and
balance between the flow of savings on the one
hand and the flow of investment leading to capital
formation on the other.
– Directs the flow of savings into most profitable
channels and thereby ensures optimum utilisation
of financial resources.

6. Capital Market- Components
• The Capital market in India is a well-integrated structure
comprising of :
– Market
• New Issue Market or Primary Market
• Stock Market or Secondary Market
– Instruments
• Equity
• Debt
– Intermediaries
• Brokers
• Investment Bankers
• Stock Exchanges
• Underwriters

7. Capital Market- Components
– Regulators
• SEBI
– Players
• Credit Rating Agencies
• Corporate
• Intermediaries
• Individual
• Banks/FI
• FDI/FII

8. Capital Market- Structure
• The Capital Market in India may be classified
into two categories :
– Organised
– Unorganised
• The structure of a Capital Market is
composed of
– The sources of demand and
– The supply of long term capital.

9. Capital Market- Structure
• In organised sector of capital market
– Demand comes from – corporate enterprises,
pulic sector enterprises, government and semi-
government institutions
– Sources of supply of funds - individual investors,
corporate and institutional investors, investment
intermediaries, financial institutions, commercial
banks and government.

10. Capital Market- Structure
• The unorganised sector of the capital market
consists of
– Indigenous bankers
– Private money lenders
• The demand in the unorganised capital market
comes from the
– Agriculturists
– Private individual for consumption rather than
production
– Small traders.

11. Capital Market- Features
• The Capital market deals with Capital.
• The Capital market serves an important purpose by pooling
the savings.
• The capital market is generally understood as a market for
long term funds and investments in long term instruments
available in this market.
• Capital market is a market where borrowing and lending of
long term funds take place.
• Capital Market deals with in both equity and debt.
• Capital market refers to all the institutes and mechanisms of
raising medium and long term funds, through various
instruments available like shares, debentures, bonds etc.

12. Capital Market
Functions

13. Capital Market - Functions
• The major functions performed by a capital
market are:
– Mobilisation of financial resources on a nation-
wide scale.
– Securing the foreign capital and know-how to fill
up the deficit in the required resources for
economic growth at a faster rate
– Effective allocation of the mobilise financial
resources, by directing the same to projects
yielding highest yield or to the projects needed to
promote balanced economic development.

14. Capital Market - Functions
– Promotes economic growth through the mobilisation of
long-term savings
– Serves a very useful purpose by pooling the savings
– The Capital Market encourage capital formation in the
country.
– Capital Markets facilitate the growth of the industrial
sector, as well as the other sectors of the economy.
– The capital market provides funds for the projects in the
backward areas.
– Capital Market generates employment in the country.
– They also facilitate the development of the stock markets.
– Due to capital markets the public has alternative sources
of investments.

15. Capital Market - Role
• Role of capital market in an economy
– Provides an important alternative source of long-term
finance for long-term productive instruments.
– Provides equity capital and infrastructure
development capital that has strong socio-economic
benefits – roads, water, sewer system, housing,
energy, telecommunications, public transport, etc.
ideal for financing through capital markets.via long
dated bonds and asset backed securities.
– Provide avenues for investment opportunities that
encourages a thrift culture critical in increasing the
domestic savings and investment ratios that are
essential for rapid industrializations.

16. Capital Market - Role
– Encourages broader ownership of productive assets by
small savers to enable them benefit from India’s economic
growth and wealth distribution. Equitable distribution of
wealth is a key indicator of poverty reduction.
– Promotes pulic-private sector partnerships to encourage
participation of private sector in productive investments.
– Assists the Government to close resource gap, and
complement its effor in financing essential socio-economic
development through raising long term project based
capital.
– Improves the efficiency of capital allocation through
competitive pricing mechanism for beter utilization of
scarce resources for increased economic growth.

17. Capital Market - Role
– Provides a gateway to India for global and
foreign porfolio investors, which is critical in
supplementing the low domestic saving ratio.

18. Types of Capital Market

19. Capital Market- Types
• Two types of Markets – Capital markets may
be classified as –
– Primary markets – In primary markets, new stock
or bond issues are sold to investors via a
mechanism known as underwriting.
– Secondary markets – In the secondary markets,
existing securities are sold and bought among
investors or traders, usually on a securities
exchange, over the counter or elsewhere.

20. Capital Market- Primary Market
• Primary Market
– Primary Market is a market of new issues. It deals
with those securities that are issued to the public for
the first time. Hence called the New Issues Market.
– It deals with the raising of fresh capital in the form of
equity shares, preference shares, debentures, bonus,
right issues etc.
– Resources in capital market can be mobilised through
:
• Equity issues (Domestic and External)
• Debt issues (Domestic and External)

21. Capital Market- Primary Market
– Domestic equity issues include equity shares,
preference shares, right issues and units of mutual
funds in the country
– External equity issues include equity shares through
the issue of Global Depository Receipts(GDR), and
American Depository Receipts(ADR)
– Domestic debt issues include bonds, debentures
(convertible and non convertible)
– External debt issues are funds mobilised in the form
of debt from overseas through External Commercial
Borrowings(ECB).

22. Capital Market- Secondary Market
• Secondary Market
– Deals with securities that are already issued by the companies
– It facilitates trading in securities and operates through stock
exchanges
– The secondary market has three types of stock exchanges
that provide liquidity to the investors through trading
transactions(buying and selling of securities) with the help of
brokers and other financial intermediaries. The 3 types of stock
exchanges are
• National Stock Exchange
• Regional Stock Exchange
• Over the Counter Exchange of India

23. Capital Market- Secondary Market
– The National Stock Exchange(NSE) and the
Bombay Stock Exchange(BSE) are the two
premier stock exchanges.
– They operate under the rules and regulations
of SEBI
– Thus the secondary market in India deals in
scrips of a large number of listed companies
and provides a world class trading due to
wide range of product availability.

24. Capital Market- Secondary Market
• The Indian Secondary Market can be segregated into
two:
– The secondary market for corporates and financial
Intermediaries.
• The entities involved in trading in the corporate issues are
– Regional Stock Exchanges
– The National Stock Exchanges
– The Over the Counter Exchange of India(OTCEI)
• The participants in this market are:
– Registered brokers – both individual and institutions.
– They in turn operate through a network of sub brokers and sub-dealers
and are connected through electronic network system.

25. Capital Market- Secondary Market
– The secondary market for government securities and
public sector undertaking bonds.
• The trading in government securities is basically divided into :
– Short term money market instruments such as treasury bills
– Long term government bonds ranging in maturity from 5 to 20
years.
• The main participants in secondary market for government
securities are entities like:
– Primary dealers, Banks, Financial institutions and Mutual funds
• The governement securities and the public sector
undertaking bonds are traded in the Wholesale Debt
Market(WDM) segment of the NSE, BSE and the OTCEI

26. Introduction to different Players of
Capital Markets

27. Capital Market – Introduction to
Major Players
• Institutions –
– The important institutions operating in the Capital market
are
• Credit Rating Agencies
• Corporate
• Intermediaries
– Brokers
– Investment Bankers
– Stock Exchanges
– Underwriters
• Individual
• Banks/FI
• FDI/FII

28. Capital Market – Introduction to
Major Players
• Intermediaries
– Brokers - A stockbroker is a regulated professional
individual, usually associated with a brokerage
firm or broker dealer, who buys and sells stocks and
other securities for both retail and institutional clients,
through a stock exchange or over the counter, in
return for a fee or commission.
– Stock Brokers in India
• IndiaInfoline, ICICIdirect, Share khan, India bulls, Geojit
Securities, HDFC, Reliance Money, Religare, Angel Broking

29. Capital Market – Introduction to
Major Players
– Investment Bankers - An investment bank is a financial
institution that assists individuals, corporations, and
governments in raising capital by underwriting or acting as the
client's agent in the issuance of securities (or both). An
investment bank may also assist companies involved in mergers
and acquisitions (M&A) and provide ancillary services such
as market making, trading of derivatives and equity securities.
– Unlike commercial Banks and retail banks, investment banks do
not take deposits.
– Investment Banks in India – Bank of America, B.N.P. Paribas,
Citi Bank, J.P. Morgan, Kotak Mahindra Bank, Yes Bank Limited,
HSBC Limited.

30. Capital Market – Introduction to
Major Players
– Stock Exchanges - A stock exchange is a form
of exchange which provides services for stock brokers
and traders to buy or sell stock and other securities. Stock
exchanges also provide facilities for issue and redemption
of securities and other financial instruments, and capital
events including the payment of income and dividends.
Securities traded on a stock exchange
include stock issued by listed companies, unit
trusts, derivatives, pooled investment products and bonds.
Stock exchanges often function as "continuous auction"
markets, with buyers and sellers consummating
transactions at a central location, such as the floor of the
exchange.

31. Capital Market – Introduction to
Major Players
– To be able to trade a security on a certain stock
exchange, it must be listed there.
– Trade on an exchange is by members only.
– Modern Markets are electronic networks, which gives
them advantages of increased speed and reduced
cost of transactions.
– A stock exchange is often the most important
component of a stock market.
– In India trading is done through two major exchanges
– NSE and BSE.
– For commodities trading – NCDEX and MCX.

32. Capital Market – Introduction to
Major Players
– Underwriters - Underwriters are those persons who, in a public
issue, agree to take up shares or debentures which are not fully
subscribed. They make a commitment to get the issue subscribed
either by others or by themselves. When a company decides to go
public, it needs an assurance that if its securities are not fully
subscribed by the public, there would be someone to subscribe to
those securities. And the underwriter does this job. It enters into an
agreement with the issuer company that in the occurrence of such
an event, it would subscribe to, by itself or by others, the securities
that remain unsubscribed.
– For performing this job, he receives a certain amount from the
issuer company, known as the ‘underwriting commission’. Apart
from this amount, he can also earn profits by selling these
securities in the market.

33. Capital Market – Introduction to
Major Players– Underwriters in India
• Industrial Development Bank of India – largest Institutional
underwriter in India
• Unit Trust of India – one of the four largest underwriter
• Life Insurance Corporation
• Industrial Credit and Investment Corporation of India
• Industrial Finance Corporation
• Private Firms like - M/s Dalal and Co., M/s Kothari and
Co., M/s Wright and Co
• Investment Companies and trusts - Industrial Investment
Trusts of Bombay, Birds Investment Ltd., Calcutta, Devkaran
nanji Investment co., and Investment Trust of India Ltd.

34. Capital Market – Introduction to
Major Players
• Credit Rating - Definition: Credit rating is an
analysis of the credit risks associated with a financial
instrument or a financial entity. It is a rating given to a
particular entity based on the credentials and the extent
to which the financial statements of the entity are sound,
in terms of borrowing and lending that has been done in
the past.
A credit rating agency (CRA) is a company that
assigns credit ratings

35. Capital Market – Introduction to
Major Players
• Description: Usually, is in the form of a detailed report based
on the financial history of borrowing or lending and credit worthiness
of the entity or the person obtained from the statements of its assets
and liabilities with an aim to determine their ability to meet the debt
obligations. It helps in assessment of the solvency of the particular
entity. These ratings based on detailed analysis are published by
various credit rating agencies like Standard & Poor's, Moody's
Investors Service, and ICRA, to name a few.
• Credit rating Agencies in India – CRISIL(Credit Rating Information
Services of India Limited), ICRA Limited(Investment Information and
Credit Rating Agency of India Limited), CIBIL(Credit Information
Bureau India Limited)

36. Capital Market – Introduction to
Major Players
• FDI/FII
– FDI is an investor which picks up more than
10% stake in a company’s equity.
– FIIs are in the form of portfolio investment
both in primary market and secondary capital
markets. They help in bridging the short-to
medium-term savings-investment gap