26th Oct. ‘09Duration: 1 hour 30 mins

Capital Marketing

Introduction

Capital market is the market for securities,

where corporates and government can

raise long term funds

The major participants are

o Government (Central and State)

o Corporates (Reliance, Infosys)

o Regulators (SEBI,RBI),

o Institutions (LIC,FII)

Types of market

Stock markets: Which provide financing through

issue of new shares and subsequent trading thereof

Bond markets: Which provides financing through

issue of bond and subsequent trading thereof

Commodity market: Which facilitates trading in

commodities

Money market: Which provides short term financing

Derivatives market: Which facilitates trading in

derivative securities

Stock markets

Where new issued stock and existing stocks are

traded

Primary market: where funds are mobilized by

issuing new shares. (IPO)

Secondary markets: where existing listed

shares are traded

The main stock exchanges in India are:

o National stock exchange (NSE)

o Bombay stock exchange (BSE)

Primary market

Primary markets are the markets for long term

capital. Also called new issue markets. (NIM)

Primary issues are used by companies for the

purpose of setting up new business or expanding or

modernizing existing business

In primary markets securities are issued by

companies directly to general public

Primary markets performs crucial function of

facilitating capital formation in the economy

There are so many formalities to be performed before

“going public” (MOA, AOA, registration of company

etc)

Secondary market

Secondary market is the financial market of

trading the securities that have already

been issued

In the secondary market securities are

traded between investors

Indian stock markets are highly liquid, deep

and well organized

Stock exchanges info.

Major stock exchanges are NSE & BSE

Number of companies listed at NSE are

1319 and BSE are 4000

The major index are NIFTY and SENSEX

Both stock exchanges trade in following

segments:o Equity

o Retail debt market and wholesale debt market

o Futures and options

Innovations at NSE

Largest in terms of daily turnover and number of tradesFirst national electronic limit order book (LOB)

exchange in IndiaSetting up first clearing corporation National securities

Clearing Corporation Ltd. (NSCCL)Co-promoting and setting up of National Securities

Depository Limited. (NSDL)Setting up S &P CNX Nifty, commencement of internet

trading in Feb. 2000.First exchange to start Exchange traded derivatives

(1996) and equity derivatives (2000)First exchange to start Gold ETF. (Exchange Trade

Funds)

Bond market

National stock exchange also has bond market where bonds are traded. It has two segments:

Wholesale Debt market's segment provides trading facilities for a variety of debt instruments including Government Securities, Treasury Bills and Bonds issued by Public Sector Undertakings/ Corporate/ Banks. Large investors and a high average trade value characterize this segment

Retail debt market: With a view to encourage wider participation of all classes of investors across the country (including retail investors) in government securities, the Government, RBI and SEBI have introduced trading in government securities for retail investors

Money market

Money market is global short term borrowing and

lending market which provides short term liquid

funding

The major players are Banks, financial institutions,

mutual funds, central banks and corporates

The main instruments in the money market are:

o Treasury bill

o Commercial paper

o Certificate of deposit

o Money market mutual funds

Commodities and Derivatives

Commodities exchange is the exchange where commodities are traded

The exchange of commodities in India is MCDX

Derivatives are the instruments whose values are derived from any underlying like stock, index, commodities

Futures are the contract where two parties agree to do trade at a fixed price and fixed terms but in the future

Options: Option is the contract which gives its buyer a right but not the obligation to buy or sell certain instruments at predetermined price

Securities exchange board of IndiaSecurities exchange board of India (SEBI) is an

autonomous body created by the Govt. of India in

1992. It is the regulator of securities markets in India

The main functions of SEBI are:

o Regulation of capital market

o Monitoring trading and clearing

o Regulation the brokers and investors

o Promoting research and investigation

o Drafting regulation, investigation and enforcement of

laws

Responsibilities and requirements of SEBISEBI has responsibility towards three groups: Investors,

Issuers of securities and Market intermediaries

Following are the major requirements laid down by

SEBI

All the brokers and sub-brokers have to get register

with SEBI

All underwriters have to deposits Rs. 20 lacs with SEBI

All the mutual funds are covered under Mutual Fund

Regulation Act 1993

All companies are free to decide their stock prices and

share premium amounts