Indian Capital Market

What is Capital Market?

A market in which individuals and institutions trade financial securities. Organizations/institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds.

Capital market comprises of

Primary market IPO Secondary market Rights Issue Bonus shares Preference Shares G-Secs Debenture Bond Commercial Paper Treasury Bills

Importance of Capital Market

Mobilisation of Savings Capital Formation Provision of investment avenues

Speedup economic growth and development

Proper regulation of funds Service provision Continuous availability of funds

Types of Capital Market

Equity Debt Derivatives

Participants in Capital Market

Investors
Individual investors Corporate investors Foreign venture capital Foreign Instituttional Investors

Issuers
Companies Government

Intermediaries
Corporate Brokers Brokers Sub Brokers Underwriters Merchant Bankers

Difference between Capital market & Money market

Maturity Period Credit Instruments Nature of Credit instruments Institutions Purpose of Loans Basic Role Relation with Central Bank

Market Regulation

Role of Capital Market in Economic development

Capital Formation

Economic Growth
Industrial Development Modernisation and Rehabilitation of Industries Revival of Sick Units Development of backward areas Employment Generation Foreign Capital Development of Stock Markets Financial Institutions

Problems in Indian Capital Markets Before 1992

Stock Exchange dominated by brokers

Poor disclosure by Mutual Funds

No prohibition of insider trading Primary markets not in the main stream of the financial systems Poor disclosure of prospectus Investors faced problems of delayed No concept of capital adequacy No inspections of stock exchanges undertaken

Capital Market Reforms

Primary Market
Setting up SEBI Disclosure standards Freedom to determine par value of shares Underwriting made optional Entry of FIIs Access to global market funds Intermediaries under SEBI regulation Credit rating agencies

Secondary Market
Setting up NSE Over the Counter Exchange of India Disclosure and investor protection gidelines for new issues Screen Based Trading System Depository System Rolling settlement NSCCL Derivative Trading Trading in Government securities Regulation of Mutual Funds