EQUITY MARKETS

Capital market is defined as a market which provides long term capital to the industrial sector for various items of fixed capital expenditure under various heads such as land, building, plant & machinery, which are permanent in nature and are used for production.

In a primary market, securities are offered to public for subscription for the purpose of raising capital or fund.

New issues marketNew issues of common stock ( share)

, bonds, preference share are sold by the companies, government and local authorities, corporation, to acquire new capital

Secondary market is an equity trading avenue in which already existing / pre-issued securities are traded among investors

Securities already outstanding and owned by investors are usually bought and sold through secondary market

Proceeds from the sale in a secondary market do not go to the issuing organization but to the current owner of the security

Information Motivated ReasonsLiquidity Motivated Reasons

Investment Companies Corporation which uses the capital

subscribed by its shareholders to build up a portfolio of securities for long term capital growth

Sources of Funds: for such investment company is share capital, borrowed money, undistributed profits, investment income and capital gains on the sale of shares in their portfolio

Portfolio Management Companies

It is a company which has arrangement with a client, advises or directs or undertakes on behalf of the client, the management of administration of a portfolio of securities or funds of the client, as the case may be

Mutual fund companies It is an investment company or a

trust that pools the resources of thousands of its unit holders and invests on behalf of them in diversified securities to achieve returns in terms of income and growth to the investors

Insurance companiesCollecting premium from the people

in return providing insurance Protection to life and propertyPremium deposited monthly/

quarterly / yearly Investment avenue

Institutional investorsFinancial institutions and banks bring

the savings of individuals to companies

Two ways:Financing projectsPurchasing existing securities from

the secondary market

Share broker Depository Participant ( DP)

Registrar and Share Transfer Agent Records of shares through various

foliosCapture the sign of investor in the IPO

formBig role to play in sending dividends,

right forms, bonus shares

Share A holder of stock (a shareholder) has a claim to a part of the

corporation's assets and earnings. A shareholder is an owner of a company. Ownership is determined by the number of shares a person owns relative to the number of outstanding shares. For example, if a company has 1,000 shares of stock outstanding and one person owns 100 shares, that person would own and have claim to 10% of the company's assets.

1)Ordinary shares:

No special right or restriction High risk-High return Last to be paid if the company is

wound up

2)Preference shares It gives preferential treatment to the

holders in following waysAnnual dividendRepaid the value if the company is to

be liquidated However, the preferential share holder

is not benefited if there is an increase in the profits of the company

3) Cumulative preference share These shares give the holders , if a

dividend cannot be paid in one year. Dividends are paid even if the earning

levels of the company are not stable.Bonus Share: Bonus shares are issued when a company

capitalizes its reserves and surplus to give bonus shares to existing shareholder.

Bonus issue is offered in a particular ratio.

Redeemable shares: can be bought back by the company at

a future date, date is not mentioned at the time of issue.

Rights Shares: Rights Issue is offered to the existing

shareholders when the company has to borrow capital from the market

Rights Issue is offered in a particular ratio

InvestorsTradersBullBear

Growth rate exceeding 8 % in the last 4 years

Mergers and acquisitions Foreign Exchange markets Commodity market attained scale Banking industry Microfinance sector emerged to

outreach and provide much needed financial services to poor Indian households

Indian economyCulture of liscensing, protection and

wide spread red tape breeding corruption

Balance of paymentsGDP- 3.5% to 8.5 % in 2008End of License Raj- new investment

and capacity creation

Biggest structural change- fall in the interest rates , reducing the cost of capital for companies

Rise in imports and exports Share of foreign trade in India’s GDP has

increased over 50% Due to increase in exports, increase in foreign

exchange reserves Portfolio Investments and FDI Bureaucracy, poor infrastructure, rigid labour

laws and unfavourable tax structure discourage FDI

Number of stock exchanges in India-23At the time of independence-4Price appreciation in the stock prices

from mid 2003 to mid 2007Role of FIIs moneyAt the end of 2005, BSE was 16th

largest stock market in the world and NSE was 18th in terms of market capitalisation

In 2004-05, private companies raised $ 2.7 bn from the market

$ 378 mn by bonds/ debenture In 2005, about 5000 cos. were listed

and traded on NSE / BSEThe dollar value of trades is much lower

than on NYSE but number of trades is 10 times more that on Euronext or London

Its of the same magnitude that on NYSE

Bombay Stock Exchange- oldest stock exchange in Asia, established in 1875

Until 1992 was a monopoly in the market, marked with inefficiency, high costs of intermediation and manipulative practice

The economic reforms created 4 new institutions The Securities and Exchange Board of India(SEBI) The National Stock Exchange ( NSE) The National Securities Clearing Corporation

(NSCC) The National Securities Depository( NSDL)

NSE accounts for 2/3rd of the stock exchange trading in India

NSCC is legal counterparty to net obligations of each brokerage and thus eliminates counter party risk

It follows rigorous risk management framework involving collateral and intra day monitoring

Regulatory framework to ensure fairness, transparency and good practice

Transparency eg: when total no. of shares is more than 0.5 % of

the equity of the company From 1996, transparency and fairness in the

working of BSE; Limit order book Brokers disclosure Playing a role of watch dog Addressing consumer grievances

Retail investors Mutual fund companies Banks Insurance companies Venture capital funds FIIs Introduction of Derivatives- Futures and options-

Biggest development in the Indian Capital markets with turnover increasing 50 to 70 times in the past 5 years

The NASDAQ Stock Market, also known as the NASDAQ, is an American stock exchange. "NASDAQ" originally stood for "National Association of Securities Dealers Automated Quotations". It is the largest electronic screen-based equity securities trading market in the United States and second-largest by market capitalization in the world.

As of January 13, 2011, there are 2,872 listings. The NASDAQ has more trading volume than any other electronic stock exchange in the world.