PRESENTATION

ON
CAPITAL MARKET

Presented By:
Vikram Jeet Singh (31/09)
Avay Singh (33/09)
Monika Raina (35/09)
 CAPITAL MARKET
 The market where investment instruments like bonds,
equities and mortgages are traded is known as the
capital market.
 The primal role of this market is to make investment
from investors who have surplus funds to the ones who
are running a deficit.
 The capital market offers both long term and overnight
funds.
 Nature of capital market
 The nature of capital market is brought out by the
following facts:
 It Has Two Segments
 It Deals In Long-Term Securities
 It Performs Trade-off Function
 It Creates Dispersion In Business Ownership
 It Helps In Capital Formation
 It Helps In Creating Liquidity
 Types of capital market

There are two types of capital market:

 Primary market,
 Secondary market
 Primary Market
 It is that market in which shares,
debentures and other securities are sold for the
first time for collecting long-term capital.
 This market is concerned with new issues.
Therefore, the primary market is also called
NEW ISSUE MARKET.
 In this market, the flow of funds is from savers
to borrowers (industries), hence, it helps
directly in the capital formation of the country.
 The money collected from this market is
generally used by the companies to modernize
the plant, machinery and buildings, for
extending business, and for setting up new
business unit.
 Features of Primary Market
 It Is Related With New Issues
 It Has No Particular Place
 It Has Various Methods Of Float Capital:
Following are the methods of raising capital in
the primary market:
i) Public Issue
ii) Offer For Sale
iii) Private Placement
iv) Right Issue
v) Electronic-Initial Public Offer
 It comes before Secondary Market
 Secondary Market
 The secondary market is that market in which the
buying and selling of the previously issued
securities is done.
 The transactions of the secondary market are
generally done through the medium of stock
exchange.
 The chief purpose of the secondary market is to
create liquidity in securities.
 If an individual has bought some security
and he now wants to sell it, he can do so
through the
. medium of stock exchange to sell
or purchase through the medium of stock
exchange requires the services of the broker
presently, their are 24 stock exchange in India.
 Features of Secondary Market

 It Creates Liquidity
 It Comes After Primary Market
 It Has A Particular Place
 It Encourage New Investments
 CAPITAL MARKET RISK

 Investment in long term financial instruments

is accompanied by high capital market risks.
Since there are two types of capital markets-
the stock market and the bond market.
 So risks are present in both the market.
 Risk in the Stock Market
 Stock prices keep fluctuating over a wide
range unlike the bank deposits or government
bonds.
 The efficient market hypothesis shows the
effect of fundamental factors in changing the
price of the stock market.
 The Efficient Market Hypothesis shows that all
price movements are random whereas there are
plenty of studies that reflect the fact that there is a
specific trend in the stock market prices over a
period of time.
 Research has shown that there are certain
psychological factors that shape the stock market
prices.
 Sometimes the market behaves illogically to
any economic news.
 The stock market prices can be diverted in any
direction in response to press releases, rumors
and mass panic.

 The stock market prices are also subject to

speculation. In the short run the stock market
prices may be very volatile due to the
occurrences of the fast market changing events.
 Risk in the Bond Market

 Capital market risk in the bond market arises

due to interest rate changes. There is an inverse
relationship existing between the interest rate
and the price of the bond. Hence the bond
prices are sensitive to the monetary policy of
the country as well as economic changes.
 CAPITAL MARKET
INVESTMENT
 Capital market investment takes place
through the bond market and the stock market.
 The capital market is basically the financial
pool in which different companies as well as
the government can raise long term funds.
 Capital market investment that takes place
through the bond and the stock market may be
elucidated in the following heads.
Capital market investments in the stock
market
 The stock market is basically the trading
ground capital market investment in the following:
i) Company’s stocks
ii) Derivatives
iii) Other securities
 The capital market investments in the stock market
take place by:
1) Small individual stock investors
2) Large hedge fund traders.
 The capital market investments can occur either in:
1) The physical market by a method known as the
open outcry.
 2) Trading can also occur in the virtual
exchange where trading is done in the computer
network.
 The investors in the stock market have the liberty
to buy or sell the stock that they are holding at their
own discretion unlike the case of government
securities, bonds or real estate.
 The stock exchanges basically function as
the clearing house for such liquid transactions.
 The capital market investments in the stock market
are also done through the derivative instruments
like the stock options and the stock futures.
Capital Market Investments in the Bond Market
 The bond market is a financial market where the
participants buy and sell debt securities.
 The bond market is also differently known as the
debt, credit or fixed income market.
 There are different types of bond markets based on
the different types of bonds that are traded. They
are:
 Corporate,
 Government and agency, 
 Municipal,
 Bonds backed by mortgages & assets,
 Collateralized Debt Obligation.
 The bonds, except for the corporate bonds do
not have formal exchanges but are traded over-
the- counter.
 Individual investors are attracted to the bond
market and make investments through
the bond funds, closed-end-funds or the unit
investment trusts.
 Another way of investing directly in the bond
issue is the Exchange-traded-funds.
 The capital market investment in the bond
market is done by:
 Institutional investors
 Governments, traders and
 Individuals.
 CAPITAL MARKET
PARTICIPANTS
There are several major players in the primary market.
These include the merchant bankers, mutual funds,
financial institutions, foreign institutional investors (FIIs)
and individual investors. In the secondary market, there
are the stock exchanges, stock brokers (who are members
of the stock exchanges), the mutual funds, financial
institutions, foreign institutional investors (FIIs), and
individual investors. Registrars and Transfer Agents,
Custodians and Depositories are capital market
intermediaries that provide important infrastructure
services for both primary and secondary markets.
 CAPITAL MARKET
REGULATIONS
It is important to ensure smooth working of capital market,
as it is the arena for the players associated with the
economic growth of the country. Various laws have been
passed from time to time to meet this objective.

The legislative framework before SEBI came into being

consisted of three major Acts governing the capital
markets:
1. The Capital Issues Control Act 1947, which restricted
access to the securities market and controlled the pricing of
issues.
2. The Companies Act, 1956, which 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.

3. The Securities Contracts (Regulation) Act, 1956, SC(R)A

which regulates transactions in securities through control
over stock exchanges. In addition, a number of other Acts,
e.g.,the Public Debt Act, 1942, the Income Tax Act, 1961,
the Banking Regulation Act, 1949,have substantial bearing
on the working of the securities market.
 CAPITAL MARKET
 Bonds
INSTRUMENTS
Indian Development Financial Institutions (DFIs) in
India, like IDBI, ICICI and IFCI have been raising
capital for their operations by issuing bonds. These
too are available in a large variety. These include:
 Income bonds
 Tax-free bonds
 Capital gains bonds
 Deep discount bonds
 Infrastructure bonds
 Retirement bonds
 Debentures
These are issued by companies and regulated under the SEBI guidelines of
June 11, 1992.
These are issued under a prospectus, which has to be approved by SEBI like
in the case of equity issues. The rights of investors as debenture holders are
governed by the Companies Act, which prohibits the issue of debentures
with voting rights. There are a large variety of debentures that is available.
This includes:
 Participating debentures
 Convertible debentures with options
 Third party convertible debentures
 Debt/equity swaps
 Zero coupon convertible notes
 Secured premium notes
 Zero interest fully convertible debentures
 Fully convertible debentures with interest
 Partly convertible debentures.
 Preference Shares
As the name suggests, owners of preference shares enjoy a
preferential treatment with regard to corporate actions like
dividend. They also have a higher right of repayment in case
of winding up of a company. Preference shares have different
features and are accordingly available as:
 Cumulative and non-cumulative
 Participating
 Cumulative & Redeemable fully convertible to preference
shares
 Cumulative & Redeemable fully convertible to equity shares
 Preference shares with warrants
 Preference shares
 Equity Shares
As the name indicates, these represent the
proportionate ownership of the company. This right
is expressed in the form of participation in the
profits of the company. There has been some
innovation in the way these instruments are issued.
Some hybrid securities like equity shares with
detachable warrants are also available.
THANK YOU!!