capital markets 28jan

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1simpliFin - Finance Education Series

Capital Markets



What are Capital Markets?

A capital market is a place where companies can raise long term funds in the form of either

shares (stocks / equity) or loans (debt).

simpliFin - Finance Education Series 2



Role of Capital Markets

The primary role of capital markets is to facilitate the raising of long term funds for companies. It

brings together long term investors and companies that need funds.


It helps small companies grow big by allowing them to tap the funds necessary for this growth.

Fund

Raising

An example is Infosys. In 1993, the company raised

some money f rom the stock markets. 1 share of value Rs

100 is now equivalent to 128 shares of value Rs 3300

each (based on bonus shares issued). The company has

grown manifold in this period.



Domestic Markets

Corporations and other entities can raise money from both domestic markets and international

markets.


Domestic Markets - Stocks

The National Stock Exchange

The Bombay Stock Exchange

Domestic Markets - Bonds

A large chunk of the domestic bond

market is the market for

government of India and state

government bonds. The Reserve

Bank of India handles their

issuance through the primarydealers.



International Markets


Companies can raise money in international markets as shares or loan. While loans are largelyraised from the international banks, a list of the international stock markets and key indices in

those markets is given below

Country Exchange Name Key Index

US NYSE Dow Jones Industrial Average Index

UK London Stock Exchange FTSE Index

Germany Frankf urt Stock Exchange DAX Index

Japan Tokyo Stock Exchange Nikkei Index



International Markets


Source: http://www.loansandcredit.com/worlds-largest-stock-exchanges/

New York Stock Exchange

Market Value $9.6 trillion

London Stock Exchange


Shanghai Stock Exchange


Bombay Stock Exchange




Domestic Equity Markets


The BSE Sensex (Sensitive

Index) is an index of the

top 30 companies listed on

the BSE.

The Nif ty is an index of

the top 50 companies

listed on the NSE.

The index of large companies acts as a barometer of the performance of the stock market over a

period. Since the top 30 or 50 companies will mirror the economic progress to a large extent,

this helps in assessing if the countrys economy is doing well.

The National Stock ExchangeThe Bombay Stock Exchange



Domestic Equity Markets - Progress


The number of listed companies on

the NSE has gone up from about 200

in 1995 to more than 3400 in 2010

Listed Companies

0

200

400

600

800

1000

1200

1400

1600

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Market Capitalization (Rs 1000 Crore)

0

2000

4000

6000

8000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

The market capitalization (Market

Value) of these firms has increasednearly 15 times over the last 15 years.



Primary & Secondary Markets


Primary Markets

Primary Markets are markets where new securities are issued. So any new equity issue or bond

issue comes on the primary market. New Equity issuances are known as IPOs (Initial Public

Offerings)

The recent share issue of SKSMicrofinance where shares were

offered to public was an example of

primary markets



Primary & Secondary Markets


Secondary Markets

Securities issued on Primary markets can be traded on secondary markets.

The securities, once they are offered on

the primary market, start trading in the

secondary market, where investors can

buy and sell them.



Debt Markets


A market where corporations and governments raise debt via selling bonds is known as Debt

market. It can be of 2 types

Government and Semi Government Debt

The government and other governmental agencies such as municipal

corporations etc raise money through issuance of bonds. This money is

used for various kind of welfare schemes.

Private Sector Debt

Companies raise debt through an issuance of bonds to retail andinstitutional players. The rate of interest offered is usually higher than

that of the government bonds, since these are perceived to be riskier.



Investments in Equity and Debt Markets


Equity Markets

Individual investors can invest in shares of companies both in the primary and

secondary markets. They can apply for shares in an IPO and buy and sell shares

on the stock exchanges

Debt Markets

Individual investors can take exposure in some government bonds and corporate

bonds directly. However, the market is less liquid.

For most other bonds issued by the government, individual investors cannot

directly invest in them. There are, however, other instruments available throughwhich they can invest in these. We will discuss some of these in forthcoming

term of the day presentations.



Thank You for reading the Term of theday.

To learn more, you may visit GVC and

take this course:

1. Raising Capital and Financing Decisions

13simpliFin - Finance Education Series

capital markets 28jan

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