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CHAPTER 1 1.

1 INTRODUCTION TO FINANCIAL MARKETS:


A financial market is a market in which people and entities can trade financial securities commodities, and other fungible items of value at low transaction costs and at prices that reflect supply and demand. Securities include stocks and bonds, and commodities include precious metals or agricultural goods. There are both general markets (where many commodities are traded) and specialized markets (where only one commodity is traded). Markets work by placing many interested buyers and sellers, including households, firms, and government agencies, in one "place", thus making it easier for them to find each other. An economy which relies primarily on interactions between buyers and sellers to allocate resources is known as a market economy in contrast either to a command economy or to a non-market economy such as a gift economy

IN FINANCE, FINANCIAL MARKETS FACILITATE:


The raising of capital (in the capital markets) The transfer of risk (in the derivatives markets) Price discovery Global transactions with integration of financial markets The transfer of liquidity (in the money markets) International trade (in the currency markets)

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1.2 STRUCTURE OF FINANCIAL MARKETS:

MONEY MARKET AND CAPITAL MARKET:

Money Market is a place for short term lending and borrowing, typically within a year. It deals in short term debt financing and investments. On the other hand, Capital Market refers to stock market, which refers to trading in shares and bonds of companies on recognized stock exchanges. Individual players cannot invest in money market as the value of investments is large, on the other hand, in capital market, anybody can make investments through a broker. Stock Market is associated with high risk and high return as against money market which is more secure. Further, in case of money market, deals are transacted on phone or through electronic systems as against capital market where trading is through recognized stock exchanges.
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CHAPTER 2 2.1 INTRODUCTION TO CAPITAL MARKET:


A. MEANING AND DEFINITION:

Capital market can be defined as: A market for medium to long-term financial instruments. Financial instruments are traded in the capital market include shares, and bonds issued by the Australian Government, State governments, corporate borrowers and financial institutions. Capital market is a market where buyers and sellers engage in trade of financial securities like bonds, stocks, etc. The buying/selling is undertaken by participants such as individuals and institutions.

Capital markets channel savings and investment between suppliers of capital such as retail investors and institutional investors, and users of capital like businesses, government and individuals. Capital markets are vital to the functioning of an economy, since capital is a critical component for generating economic output. Capital markets include primary markets, where new stock and bond issues are sold to investors, and secondary markets, which trade existing securities a market for medium to long-term financial instruments. Capital markets are financial markets for the buying and selling of long-term debt or equity-backed securities. These markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments.

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B. FEATURES:
An efficient capital market is perfect if the above mentioned conditions are fully satisfied. A capital market which is otherwise reasonably efficient will have imperfections to the extent it does not satisfy the conditions of the perfect capital market. There are three significant imperfections that may be found in most capital markets in different degrees. A perfect capital market imposes more stringent conditions. The following are the attributes of a perfect capital market: TAX ASYMMETRIES: Most economies have varieties of taxes and tax incentives which cause tax asymmetries. These make security transactions more beneficial to some ones. A number of financial transactions may create additional wealth because of tax differences.

INFORMATION ASYMMETRIES: Most financial information is published and therefore, is publicly available. But sometimes, certain persons may have superior information than others. These persons may earn abnormal return for sometimes.

TRANSACTION COSTS: These costs do not affect the prices. But, they can cause one transaction to be more profitable than the other. Transaction costs of two similar financial transactions may be different. Similarly transaction costs of two persons to a particular transaction may be different. In practice, capital markets have imperfections. For developing frameworks for analyzing financial decisions, a good starting point is to

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assume that capital markets are perfect. Once a framework developed, the practical implications of market imperfections can be analyzed.

NO ENTRY BARRIERS: Any one can participate in the market. Thus the suppliers or users of funds can enter the market and deal with each other.

LARGE NUMBER OF BUYERS AND SELLERS: Perfect competition in the market is ensured by the presence of large number of buyers and sellers of securities.

DIVISIBILITY OF FINANCIAL ASSETS: Financial assets are divisible and therefore, affordable investments are made by all participants.

ABSENCE OF TRANSACTION COST: There are no transaction costs. Participants can buy and sell securities with ease and without many costs.

NO TAX DIFFERENCES: ideally, there are any taxes. There should not be any tax distortions. One set of investors should not be favored over others.

FREE TRADING: Any one is free to trade in security.

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C. ROLE AND FUNCTIONS OF CAPITAL MARKET:


Like the money market capital market is also very important. It plays a significant role in the national economy. A developed, dynamic and vibrant capital market can immensely contribute for speedy economic growth and development. Let us get acquainted with the important functions and role of the capital market. MOBILIZATION OF SAVINGS: Capital market is an important source for mobilizing idle savings from the economy. It mobilizes funds from people for further investments in the productive channels of an economy. In that sense it activates the ideal monetary resources and puts them in proper investments.

CAPITAL FORMATION: Capital market helps in capital formation. Capital formation is net addition to the existing stock of capital in the economy. Through mobilization of ideal resources it generates savings; the mobilized savings are made available to various segments such as agriculture, industry, etc. This helps in increasing capital formation.

PROVISION OF INVESTMENT AVENUE: Capital market raises resources for longer periods of time. Thus it provides an investment avenue for people who wish to invest resources for a long period of time. It provides suitable interest rate returns also to investors. Instruments such as bonds, equities, units of mutual funds, insurance policies, etc. definitely provides diverse investment avenue for the public.

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SPEED UP ECONOMIC GROWTH AND DEVELOPMENT: Capital market enhances production and productivity in the national economy. As it makes funds available for long period of time, the financial requirements of business houses are met by the capital market. It helps in research and development. This helps in, increasing production and productivity in economy by generation of employment and development of infrastructure.

PROPER REGULATION OF FUNDS: Capital markets not only helps in fund mobilization, but it also helps in proper allocation of these resources. It can have regulation over the resources so that it can direct funds in a qualitative manner.

CONTINUOUS AVAILABILITY OF FUNDS: Capital market is place where the investment avenue is continuously available for long term investment. This is a liquid market as it makes fund available on continues basis. Both buyers and seller can easily buy and sell securities as they are continuously available. Basically capital market transactions are related to the stock exchanges. Thus marketability in the capital market becomes easy.

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CHAPTER 3 3.1 TYPES OF CAPITAL MARKET:


CAPITAL MARKET

PRIMARY MARKET

SECONDARY MARKET

THERE ARE TWO TYPES OF CAPITAL MARKET

1. PRIMARY MARKET: The primary market is that part of the capital markets that deals with the issuance of new securities. Companies, governments or public sector institutions can obtain funding through the sale of a new stock or bond issue. This is typically done through a syndicate of securities dealers. The process of selling new issues to investors is called underwriting. In the case of a new stock issue, this sale is an initial public offering (IPO). Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus.

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FEATURES:

This is the market for new long term equity capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called the new issue market (NIM).

In a primary issue, the securities are issued by the company directly to investors. The company receives the money and issues new security certificates to the investors. Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.

The primary market performs the crucial function of facilitating capital formation in the economy.

The new issue market does not include certain other sources of new long term external finance, such as loans from financial institutions. Borrowers in the new issue market may be raising capital for converting private capital into public capital; this is known as going public. The financial assets sold can only be redeemed by the original holder.

METHODS OF ISSUING SECURITIES IN THE PRIMARY MARKET ARE:

A. INITIAL PUBLIC OFFERING; B. RIGHTS ISSUE (FOR EXISTING COMPANIES)

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A. INITIAL PUBLIC OFFERING An initial public stock offering (IPO) referred to simply as an offering or flotation, is when a company issues common stock or shares to the public for the first time. They are often issued by smaller, younger companies seeking capital to expand, but can also be done by large privatelyowned companies looking to become publicly traded. An IPO can be a risky investment. For the individual investor, it is tough to predict what the stock or shares will do on its initial day of trading and in the near future since there is often little historical data with which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they are therefore subject to additional uncertainty regarding their future value.

B. RIGHTS ISSUE Under a secondary market offering or seasoned equity offering of shares to raise money, a company can opt for a rights issue to raise capital. The rights issue is a special form of shelf offering or shelf registration. With the issued rights, existing shareholders have the privilege to buy a specified number of new shares from the firm at a specified price within a specified time. A rights issue is in contrast to an initial public offering (primary market offering), where shares are issued to the general public through market exchanges.

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2. SECONDARY MARKET: The secondary market, also known as the aftermarket, is the financial market where previously issued securities and financial instruments such as stock, bonds, options, and futures are bought and sold. The term secondary market is also used to refer to the market for any used goods or assets, or an alternative use for an existing product or asset where the customer base is the second market (for example, corn has been traditionally used primarily for food production and feedstock, but a second- or third- market has developed for use in ethanol production). Another commonly referred to usage of secondary market term is to refer to loans which are sold by a mortgage bank to investors such as Fannie Mae and Freddie Mac. With primary issuances of securities or financial instruments, or the primary market, investors purchase these securities directly from issuers such as corporations issuing shares in an IPO or private placement, or directly from the federal government in the case of treasuries. After the initial issuance, investors can purchase from other investors in the secondary market. The secondary market for a variety of assets can vary from loans to stocks, from fragmented to centralized, and from illiquid to very liquid. The major stock exchanges are the most visible example of liquid secondary markets in this case, for stocks of publicly traded companies. Exchanges such as the New York Stock Exchange, Nasdaq and the American Stock Exchange provide a centralized, liquid secondary market for the investors who own stocks that trade on those exchanges. Most bonds and structured products trade over the counter, or by phoning the bond desk of ones broker-dealer. Loans sometimes trade online using a Loan Exchange.

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CHAPTER 4 4.1 CAPITAL MARKET INSTRUMENTS


The capital market, as it is known, is that segment of the financial market that deals with the effective channeling of medium to long-term funds from the surplus to the deficit unit. The process of transfer of funds is done through instruments, which are documents (or certificates), showing evidence of investments. The instruments traded (media of exchange) in the capital market are: 1. DEBT INSTRUMENTS: A debt instrument is used by either companies or governments to generate funds for capitalintensive projects. It can be obtained either through the primary or secondary market. The relationship in this form of instrument ownership is that of a borrower creditor and thus, does not necessarily imply ownership in the business of the borrower. The contract is for a specific duration and interest is paid at specified periods as stated in the trust deed* (contract agreement). The principal sum invested, is therefore repaid at the expiration of the contract period with interest either paid quarterly, semi-annually or annually. The interest stated in the trust deed may be either fixed or flexible. The tenure of this category ranges from 3 to 25 years. Investment in this instrument is, most times, risk-free and therefore yields lower returns when compared to other instruments traded in the capital market. Investors in this category get top priority in the event of liquidation of a company.

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DEBT INSTRUMENTS ARE ISSUED BY: The Federal Government, it is called a Sovereign Bond; A state government it is called a State Bond; A local government, it is called a Municipal Bond; and A corporate body (Company), it is called a Debenture, Industrial Loan or Corporate Bond

2. EQUITIES: This instrument is issued by companies only and can also be obtained either in the primary market or the secondary market. Investment in this form of business translates to ownership of the business as the contract stands in perpetuity unless sold to another investor in the secondary market. The investor therefore possesses certain rights and privileges (such as to vote and hold position) in the company. Whereas the investor in debts may be entitled to interest which must be paid, the equity holder receives dividends which may or may not be declared. The risk factor in this instrument is high and thus yields a higher return (when successful). Holders of this instrument however rank bottom on the scale of preference in the event of liquidation of a company as they are considered owners of the company.

3. PREFERENCE SHARES: This instrument is issued by corporate bodies and the investors rank second (after bond holders) on the scale of preference when a company goes under. The instrument possesses the
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characteristics of equity in the sense that when the authorised share capital and paid up capital are being calculated, they are added to equity capital to arrive at the total. Preference shares can also be treated as a debt instrument as they do not confer voting rights on its holders and have a dividend payment that is structured like interest (coupon) paid for bonds issues.

PREFERENCE SHARES MAY BE: Irredeemable, convertible: in this case, upon maturity of the instrument, the principal sum being returned to the investor is converted to equities even though dividends (interest) had earlier been paid. Irredeemable, non-convertible: here, the holder can only sell his holding in the secondary market as the contract will always be rolled over upon maturity. The instrument will also not be converted to equities. Redeemable: here the principal sum is repaid at the end of a specified period. In this case it is treated strictly as a debt instrument.

4. DERIVATIVES These are instruments that derive from other securities, which are referred to as underlying assets (as the derivative is derived from them). The price, riskiness and function of the derivative depend on the underlying assets since whatever affects the underlying asset must affect the derivative. The derivative might be an asset, index or even situation. common in developed economies.
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Derivatives are mostly

Some examples of derivatives are: Mortgage-Backed Securities (MBS) Asset-Backed Securities (ABS) Futures Options Swaps Rights Exchange Traded Funds or commodities

Advantages of Derivatives: They help in transferring risks from risk adverse people to risk oriented people. They help in the discovery of future as well as current prices. They catalyze entrepreneurial activity. They increase the volume traded in markets because of participation of risk adverse people in greater numbers. They increase savings and investment in the long run.

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CHAPTER 5 5.1 HISTORY OF INDIAN CAPITAL MARKET:


Since 2003, Indian capital markets have been receiving global attention, especially from sound investors due to the improving macroeconomic fundamentals. The presence of a great pool of skilled labor and the rapid integration with the world economy increased Indias global competitiveness. No wonder, the global ratings agencies Moodys and Fitch have awarded India with investment grade ratings, indicating comparatively lower sovereign risks. The Securities and Exchange Board of India (SEBI), the regulatory authority for Indian securities market, was established in 1992 to protect investors and improve the microstructure of capital markets. In the same year, Controller of Capital Issues (CCI) was abolished, removing its administrative controls over the pricing of new equity issues. In less than a decade later, the Indian financial markets acknowledged the use of technology (National Stock Exchange started online trading in 2000), increasing the trading volumes by many folds and leading to the emergence of new financial instruments. With this, market activity experienced a sharp surge and rapid progress was made in further strengthening and streamlining risk management, market regulation, and supervision. The securities market is divided into two interdependent segments:

The primary market provides the channel for creation of funds through issuance of new securities by companies, governments, or public institutions. In the case of new stock issue, the sale is known as Initial Public Offering (IPO).

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

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5.2 BROAD CONSTITUENTS IN THE INDIAN CAPITAL MARKETS


FUND RAISERS are companies that raise funds from domestic and foreign sources, both public and private. The following sources help companies raise funds:

FUND PROVIDERS are the entities that invest in the capital markets. These can be categorized as domestic and foreign investors, institutional and retail investors. The list includes subscribers to primary market issues, investors who buy in the secondary market, traders, speculators, FIIs/ sub accounts, mutual funds, venture capital funds, NRIs, ADR/GDR investors, etc.

INTERMEDIARIES are service providers in the market, including stock brokers, sub-brokers, financiers, merchant bankers, underwriters, depository participants, registrar and transfer agents, FIIs/ sub accounts, mutual Funds, venture capital funds, portfolio managers, custodians, etc

. ORGANIZATIONS include various entities such as MCX-SX, BSE, NSE, other regional stock exchanges, and the two depositories National Securities Depository Limited (NSDL) and Central Securities Depository Limited (CSDL).

MARKET REGULATORS include the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), and the Department of Company Affairs (DCA).

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5.3 EXCHANGE PLATFORM


A. DOMESTIC EXCHANGES Indian equities are traded on three major national exchanges: MCX Stock Exchange Limited (MCX-SX), Bombay Stock Exchange Limited (BSE) and National Stock Exchange of India Limited (NSE).

MCX STOCK EXCHANGE

MCX Stock Exchange Limited (MCX-SX), Indias new stock exchange, is recognized by the Securities and Exchange Board of India (SEBI) under Section 4 of the Securities Contracts (Regulation) Act, 1956. The Exchange was granted the status of a recognized stock exchange by the Government of India on December 19, 2012. In line with global best practices and regulatory requirements, clearing and settlement of trades is conducted through a separate clearing corporation-MCX-SX Clearing Corporation Limited (MCX-SX CCL). MCX-SX commenced operations in Currency Futures in the Currency Derivatives segment on October 7, 2008 under the regulatory framework of SEBI and Reserve Bank of India (RBI). The Exchange commenced trading in Currency Options on August 10, 2012. The Exchange received permissions to deal in Interest Rate Derivatives, Equity, Futures and Options on Equity and Wholesale Debt segments, vide SEBIs letter dated July 10, 2012. The Exchange further received permission to commence trading in these new segments, vide SEBIs letter dated December 19, 2012. The Exchange commenced trading in the Equity segment on February 11, 2013.

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BOMBAY STOCK EXCHANGE (BSE)

BSE is the oldest stock exchange in Asia. The extensiveness of the indigenous equity broking industry in India led to the formation of the Native Share Brokers Association in 1875, which later became Bombay Stock Exchange Limited (BSE). BSE is widely recognized due to its pivotal and pre-eminent role in the development of the Indian capital market. BSE has a nation-wide reach with a presence in more than 450 cities and towns of India. BSE has always been at par with the international standards. It is the first exchange in India and the second in the world to obtain an ISO 9001:2000 certifications. It is also the first exchange in the country and second in the world to receive Information Security Management System Standard BS 7799-2-2002 certification for its BSE Online Trading System (BOLT). Benchmark Indices futures: BSE 30 SENSEX, BSE 100, BSE TECK, BSE Oil and Gas, BSE Metal, BSE FMCG.

NATIONAL STOCK EXCHANGE (NSE)

NSE was recognized as a stock exchange in April 1993 under the Securities Contracts (Regulation) Act. It commenced its operations in Wholesale Debt Market in June 1994. The capital market segment commenced its operations in November 1994, whereas the derivative segment started in 2000. NSE introduced a fully automated trading system called NEAT (National Exchange for Automated Trading) that operated on a strict price/time priority. This system enabled efficient trade and the ease with which trade was done. NEAT had lent considerable depth in the market by enabling large number of members all over the country to trade simultaneously, narrowing the spreads significantly.
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The derivatives trading on NSE commenced with S&P CNX Nifty Index futures on June 12, 2000. The futures contract on NSE is based on S&P CNX Nifty Index. The Futures and Options trading system of NSE, called NEAT-F&O trading system, provides a fully automated screen based trading for S&P CNX Nifty futures on a nationwide basis and an online monitoring and surveillance mechanism. It supports an order-driven market and provides complete transparency of trading operations.

B. INTERNATIONAL EXCHANGES Due to increasing globalization, the development at macro and micro levels in international markets is compulsorily incorporated in the performance of domestic indices and individual stock performance, directly or indirectly. Therefore, it is important to keep track of international financial markets for better perspective and intelligent investment.

NASDAQ

(NATIONAL

ASSOCIATION

OF

SECURITIES

DEALERS

AUTOMATED QUOTATIONS) NASDAQ is an American stock exchange. It is an electronic screen-based equity securities trading market in the US. It was founded in 1971 by the National Association of Securities Dealers (NASD). However, it is owned and operated by NASDAQ OMX group, the stock of which was listed on its own stock exchange in 2002. The exchange is monitored by the Securities and Exchange Commission (SEC), the regulatory authority for the securities markets

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in the United States. NASDAQ is the world leader in the arena of securities trading, with 3,900 companies (NASDAQ site) being listed.

LSE (LONDON STOCK EXCHANGE)

The London Stock Exchange was founded in 1801 with British as well as overseas companies listed on the exchange. The LSE has four core areas: Equity markets, Trading services, Market data information and Derivatives. The exchange offers a range of products in derivatives segment with underlying from Russian, Nordic, and Baltic markets. Internationally, it offers products with underlying from Kazakhstan, India, Egypt, and Korea.

FRANKFURT STOCK EXCHANGE

It is situated in Frankfurt, Germany. It is owned and operated by Deutsche Brse. The Frankfurt Stock Exchange has over 90 percent of turnover in the German market and a big share in the European market. The exchange has a few well-known trading indices of the exchange, such as DAX, DAX plus, CDAX, Div DAX, LDAX, MDAX, SDAX, Tec DAX, VDAX, and Euro Stock 50.

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CHAPTER 6 6.1 REGULATORY FRAMEWORK

THERE ARE FOUR MAIN LEGISLATIONS GOVERNING THE SECURITIES MARKET:

THE SEBI ACT, 1992: establishes SEBI to protect investors and develop and regulate the securities market.

THE COMPANIES ACT, 1956: sets out the code of conduct for the corporate sector in relation to issue, allotment, and transfer of securities, and disclosures to be made in public issues.

THE SECURITIES CONTRACTS (REGULATION) ACT, 1956: provides for regulation of transactions in securities through control over stock exchanges.

THE DEPOSITORIES ACT, 1996: provides for electronic maintenance and transfer of ownership of demat securities.

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SEBI SEBI protects the interests of investors in securities and promotes the development of the securities market. The board helps in regulating the business of stock exchanges and any other securities market. SEBI is also responsible for registering and regulating the working of stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers, and such other intermediaries who may be associated with securities markets in any manner. The board registers the venture capitalists and collective investments like mutual funds. SEBI helps in promoting and regulating self regulatory organizations. http://www.sebi.gov.in

RBI: RBI is also known as the bankers bank. The central bank has some very important objectives and functions such as: OBJECTIVES

Maintain price stability and ensure adequate flow of credit to productive sectors. Maintain public confidence in the system, protect depositors' interest, and provide costeffective banking services to the public.

Facilitate external trade and payment and promote orderly development and maintenance of the foreign exchange market in India.

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FUNCTIONS

Formulate implements and monitor the monetary policy. Manage the Foreign Exchange Management Act, 1999. Issue new currency and coins and exchange/destroy currency and coins not fit for circulation.

Perform a wide range of promotional functions to support national objectives.

DEA: The DEA is the nodal agency of the Union government to formulate and monitor the country's economic policies and programmers that have a bearing on domestic and international aspects of economic management. FUNCTIONS: Formulation and monitoring of macro-economic policies, including issues relating to fiscal policy and public finance, inflation, public debt management, and the functioning of capital market, including stock exchanges.

Monitoring and raising of external resources through multilateral and bilateral development assistance, sovereign borrowings abroad, foreign investments, and monitoring foreign exchange resources, including balance of payments.

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CHAPTER 7 7.1 GROWTH AND DEVELOPMENT OF CAPITAL MARKET


GROWTH OF DEVELOPMENT BANKS AND FINANCIAL INSTITUTIONS:

For providing long term funds to industry, the government set up Industrial Finance Corporation in India (IFCI) in 1948. This was followed by a number of other development banks and institutions like the Industrial Credit and Investment Corporation of India (ICICI) in 1955, Industrial Development Bank of India (IDBI) in 1964, Industrial Reconstruction Corporation of India (IRCI) in 1971, Foreign Investment Promotion Board in 1991, Over the Counter Exchange of India (OTCEI) in 1992 etc. In 1969, 14 major commercial banks were nationalized.

SETTING UP OF SEBI:

The Securities Exchange Board of India (SEBI) was set up in 1988 and was given statutory recognition in 1992.

CREDIT RATING AGENCIES:

Credit rating agencies provide guidance to investors / creditors for determining the credit risk. The Credit Rating Information Services of India Limited (CRISIL) was set up in 1988 and Investment Information and Credit Rating Agency of India Ltd. (ICRA) was set up in 1991. These agencies are likely to help the development of capital market in future.

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GROWTH OF MUTUAL FUNDS:

The mutual funds collect funds from public and other investors and channelize them into corporate investment in the primary and secondary markets. The first mutual fund to be set up in India was Unit Trust of India in 1964.

INCREASING AWARENESS:

During the last few years there have been increasing awareness of investment opportunities among the public. Business newspapers and financial journals have made the people aware of new long-term investment opportunities in the security market.

GROWTH OF UNDERWRITING BUSINESS:

The growing underwriting business has contributed significantly to the development of capital market.

DEVELOPMENT OF VENTURE CAPITAL FUNDS:

Venture capital represents financial investment in highly risky projects with a hope of earning high returns After 1991, economic liberalization has made possible to provide medium and long term funds to those firms, which find it difficult to raise funds from primary markets and by way of loans from FIs and banks.

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7.2 REFORMS IN CAPITAL MARKET:

The government has taken several measures to develop capital market in post-reform period, with which the capital market reached new heights.

Some of the important measures are: SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI):

SEBI became operational since 1992. It was set with necessary powers to regulate the activities connected with marketing of securities and investments in the stock exchanges, merchant banking, portfolio management, stock brokers and others in India. The objective of SEBI is to protect the interest of investors in primary and secondary stock markets in the country.

NATIONAL STOCK EXCHANGE (NSE)

The setting up to NSE is a landmark in Indian capital markets. At present, NSE is the largest stock market in the country. Trading on NSE can be done throughout the country through the network of satellite terminals. NSE has introduced inter-regional clearing facilities.

DEMATERIALIZATION OF SHARES

Demat of shares has been introduced in all the shares traded on the secondary stock markets as well as those issued to the public in the primary markets. Even bonds and debentures are allowed in demat form. The advantage of demat is that it involves paperless transactions.

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SCREEN BASED TRADING:

The Indian stock exchanges were modernized in 90s, with Computerized Screen Based Trading System (SBTS), It cuts down time, cost, risk of error and fraud and there by leads to improved operational efficiency. The trading system also provides complete online market information through various inquiry facilities.

INVESTOR PROTECTION:

The Central Government notified the establishment of Investor Education and Protection Fund (IEPF) with effect from 1st Oct. 2001: The IEPF shall be credited with amounts in unpaid dividend accounts of companies, application moneys received by companies for allotment of any securities and due for refund, matured deposits and debentures with companies and interest accrued there on, if they have remained unclaimed and unpaid for a period of seven years from the due date of payment. The IEPF will be utilized for promotion of awareness amongst investors and protection of their interests.

TRADING IN CENTRAL GOVERNMENT SECURITIES:

In order to encourage wider participation of all classes of investors, including retail investors, across the country, trading in government securities has been introduced from January 2003. Trading in government securities can be carried out through a nationwide, anonymous, orderdriver, screen-based trading system of stock exchanges in the same way in which trading takes place in equities.

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INTERNET TRADING:

Trading on stock exchanges is allowed through internet, investors can place orders with registered stock brokers through internet. This enables the stock brokers to execute the orders at a greater pace.

BUY BACK OF SHARES:

Since 1999, companies are allowed to buy back of shares. Through buy back, promoters reduce the floating equity stock in market. Buy back of shares help companies to overcome the problem of hostile takeover by rival firms and others.

.PAN MADE MANDATORY:

In order to strengthen the Know your client" norms and to have sound audit trail of transactions in securities market, PAN has been made mandatory with effect from January 1, 2007.

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CONCLUSION
Indian markets amongst the best regulated markets in the world. Need for greater integration with international markets in terms of capital flows, products and processes. Need to introduce new age financial products and to encourage. Participation of new age investors. The lack of an advanced and vibrant capital market can lead to underutilization of financial resources. The developed capital market also provides access to the foreign capital for domestic industry. Thus capital market definitely plays a constructive role in the overall development of an economy. SEBIs task is challenging and complex. SEBI has taken various measures to bring sufficiency in the capital markets leading to growth and development of the economy. Capital markets provide an additional investment option through the purchase of securities. Individuals are given the opportunity to diversify their investment risk. Capital markets also provide a savings avenue. Capital markets help mobilize domestic savings, hence facilitating the reallocation of financial resources from dormant to more productive activities. Companies have the opportunity to raise long-term finance through equity and debt financing. Capital markets enhance the inflow of international capital when international investors participate in debt and equity instruments.

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BIBLIOGRAPHY BOOKS:
DYNAMICS OF INDIAN FINANCIAL SYSTEM

BY - PREETY SINGH INDIAN FINANCIAL SYSTEM

BY BHARATI V. PATHAK

FINANCIAL SERVICE AND MARKET-

BY DR.S.GURUSWAMY

WEBSITES:

http://www.google.com/web http://www.scribd.com http://www.slideshare.com http://www.slideworld.com http://www.nseindia.com http://rbiorg.in

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