INDIAN FINANCIAL/ CAPITAL MARKETS

Financial Markets
A Market is a place where buyers and sellers come together to exchange something Financial Markets are where financial Instruments/products are exchanged. A Financial Market is known by type of product traded in it

Different Financial Markets

FINANCIAL MARKET

Money Market

Capital Market

Debt Market

Forex Market

Commodity Market

Primary Market

Secondary Market

GILT edged Market

Corporate Market

Money Market
Markets for short term
Borrowing and Lending

Primarily used by Banks Typical Financial Instruments

Call money market Treasury bill market Term money market Certificate of deposit market Commercial papers Bills Discounting Interest rate Swaps and FRAS

Capital Market
It is an institutional arrangement for borrowing medium and long-term funds and which provides facilities for marketing and trading of securities. So it constitutes all long-term borrowings from banks and financial institutions, borrowings from foreign markets and raising of capital by issue various securities such as shares debentures, bonds, etc.

Capital Market
Long Term Funds Raised by
Government Corporate

Trading Instruments used

Shares Derivatives Units of Mutual Funds

SIGNIFICANCE OF CAPITAL MARKETS

Growth of savings Efficient allocation of investment resources Better utilization of the existing resources
CAPITAL MARKET INSTRUMENTS

o o o o o

Equity Preference shares Debenture/ Bonds ADRs/ GDRs Derivatives

Types of Capital market

Primary Market
Instruments issued for first time Used by
Government/Corporates/PSUs

IPO
Initial Public Offering

Secondary Market
Trading of already issued
Stocks Bonds

Stock Exchange

Primary Market
The Primary Market consists of arrangements, which facilitate the procurement of long-term funds by companies by making fresh issue of shares and debentures. You know that companies make fresh issue of shares and/or debentures at their formation stage and, if necessary, subsequently for the expansion of business.

PARTIES INVOLVED IN THE NEW ISSUE/PRIMARY MARKET Managers to the Issue Registrar to the Issue Underwriters Bankers to the Issue Advertising Agents The Financial Institutions

TYPES OF ISSUES IN PRIMARY MARKET Issue through prospectus Public issue (Offer for sale): Private Placement Rights Issue Book Buildings ESOP BONUS ISSUE

SECONDARY MARKET
The secondary market known as stock market or stock exchange plays an equally important role in mobilizing long-term funds by providing the necessary liquidity to holdings in shares and debentures Place where buying and selling of existing Shares/ Debt.
EXAMPLES OF STOCK MARKETS

In India- BSE & NSE Internationally- NYSE, LSE & TSE are the largest capital markets

Stock and Shares

Stock
Capital raised by corporations Through issue and distribution of shares

Share
Signifies ownership in the company A company might have thousands of Shareholders

Which company issued shares for the first time in the world???
The Dutch East India Company in 1602

The main characteristics of a stock exchange are

It is an organized market. It provides a place where existing and approved securities can be bought and sold easily. In a stock exchange, transactions take place between its members or their authorized agents. All transactions are regulated by rules and by laws of the concerned stock exchange. It makes complete information available to public in regard to prices and volume of transactions taking place every day.

FUNCTIONS OF A STOCK EXCHANGE Provides ready and continuous market Provides information about prices and sales Provides safety to dealings and investment Helps in mobilisation of savings and capital formation Barometer of economic and business conditions Better Allocation of funds

Stock Exchange
Place where the shares are traded
BSE NSE

BSE Bombay Stock Exchange

Oldest Stock Exchange in Asia Sensex Sensitive Index
Index of 30 Actively traded Companies

NSE National Stock Exchange

Incorporated in 1992 Nifty
Index of 50 Actively traded Companies

Primary Markets

Structure of Capital Markets

Secondary Markets

When companies need financial resources for its expansion, they borrow money from investors through issue of securities. Securities issued a)Preference Shares b)Equity Shares c)Debentures Equity shares is issued by the under writers and merchant bankers on behalf of the company. People who apply for these securities are: a)High net worth individual b)Retail investors c)Employees d)Financial Institutions e)Mutual Fund Houses f)Banks
7/4/2013 One time activity by the company.

The place where such securities are traded by these investors is known as the secondary market. Securities like Preference Shares and Debentures cannot be traded in the secondary market.

Equity shares are tradable through a private broker or a brokerage house. Securities that are traded are traded by the retail investors.

G.Venkatachalam. Helps in mobilizing the funds for the investors MBA.,M.Com.,M.Phil., in the short run.

DISTINCTION BETWEEN PRIMARY MARKET AND SECONDARY MARKET

Function Participants Listing Requirement Determination of prices

Debt Market
Debt
Contract One Party lends to another Party Predetermined
Interest Rates and Term

Participants
Banks Financial Institutions Mutual Funds Insurance Companies etc.

Instruments
Government Securities (G-Secs) Public Sector Units Bonds Corporate Securities

Foreign Exchange Market

Foreign Goods
Payments in Foreign Currency Forex Market

Participants
Government
Payments for Imports Repayment of Loans

Importers

Exchange Rates One Currency in terms of other (Eg. 1 US Dollar = 55 Rupees)

Bid Rate Offer Rate

Investment Basics
Using savings to get returns in future is known as Investment Why should I invest??
I want to earn return on my idle money A good bank balance before I retire I intend to own a Mansion and Ferrari

When should I invest

As soon as possible

Where to invest???
Physical Assets
Real Estate ,Gold/jewellery Requires huge capital

Financial Assets
Savings Bank Account Fixed Deposits Post office Government Bonds Provident Funds

A Few Jargons!!!
Types of Shares
Common/Equity Preferred

Face Value Market Value

Market Capitalization
Dividend

A few more Jargons!!!

Stock Broker Mutual Funds Annual Report

Prospectus
Liquidity

PRIVATE EQUITY/ PRIVATE PLACEMENT Funds are raised in the primary market by issuing securities privately to some investors without resorting to underwriting (insurance against risk by a guarantor). The investors in this case may by financial institutions, commercial banks, and other companies, shareholders of promoting companies, and friends and associates of the promoters.

REASONS FOR DEVELOPMENT OF PRIVATE PLACEMENT

Private placement of securities is subject to much less compliance than the public issue. Private placement is cost effective as compared to public issue. Private placement is time effective as deals can be easily and directly negotiated with few investors. Private placement helps to tailoring the issues according to the needs of the companies.

Regulatory Environment in India

Pre 1991
Tight Control of Government

Post 1991
Liberalization Opening of the Economy Need for Supervision
Regulation

Regulatory Bodies

Regulatory Environment in India

RBI Reserve Bank of India
Established in 1935 Bankers Bank Regulates Indian Financial Institutions

SEBI Securities and Exchange Board of India

Incorporated in 1992 Regulation of Securities Market Protecting the interests of Investors

So want something more???

Whats more in Store??
Mutual Funds Stock Valuation Derivatives

Thank you !!