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Indian Capital Market
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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. Thus, this type of market is composed of
both the primary and secondary markets.
Capital markets are financial markets for the buying and
selling of long-term debt- or equity-backed securities. These
markets channel the wealth of savers to those who can put it
to long-term productive use, such as companies or
governments making long-term investments.
Capital Market is where trading in financial instruments is
conducted to raise capital.
Three categories of participants:
Issuer of securities: Borrowers or deficit savers who issue
securities to raise funds(corporate sector, central
Investors: Surplus savers who deploy savings by subscribing to
these securities(include retail investors, mutual funds).
The Intermediaries: Agents who match the need of the users
and suppliers of funds.
Nature Of Capital Market
The nature of capital market is brought out by the
Its has two segments primary and secondary market.
It performs trade-off function.
It deals in long-term securities.
It helps in creating liquidity.
It creates dispersion in business ownership.
It helps in capital function.
Role and Function of Capital Market
Avenue Provision of Investment
Speed up Economic Growth and Development
Mobilization of Savings
Proper Regulation of Funds
Continuous Availability of Funds
Factors affect the Capital Market
Economy of the Country
Global Capital Market Scenario
Foreign Funds Inflow
Strength/Weakness of the local currency
Types of Capital Market
It is that market in which shares, debentures and other
securities are sold for the first time for collecting long-term
This market is concerned with new issues. Therefore, the
primary market is also called NEW ISSUE MARKET (NIM).
Features of Primary Market:
This is the market for new long term capital. The primary
market is the market where the securities are sold for the
first time. Therefore it is also called New Issue Market (NIM).
In a primary issue, the securities are issued by the
company directly to investors.
The company receives the money and issue new security
certificates to the investors.
Primary issues are used by companies for the purpose of
setting up new business or for expanding or modernizing the
The new issue market does not include certain other sources
of new long term external finance, such as loans from
Classification of Issues
Classification of Issue
Public Issue :
It involves raising of funds directly from the public and get
themselves listed on the stock exchange.
In case of new companies ,the face value of the securities is
issue at par; and
In the case of existing companies, the face value of securities
are issued at premium.
Initial public offer (IPO): When an unlisted company makes
either a fresh issue of securities or offers its existing securities
for sale or both for the first time to the public, it is called an
IPO. This payes way for listing and trading of the issuer’s
securities in the Stock Exchanges.
Further public offer (FPO): When an already listed company
makes either a fresh issue of securities to the public or an
offer for sale to the public, it is called a FPO.
Right issue is the method of raising additional finance from
existing members by offering securities to them on pro rate
bases. The rights offer should be kept open for a period of 60
days and should be announced within one month of the
closure of books.
Companies distribute profits to existing shareholders by way
of fully paid bonus share in lieu of dividend.
These are issued in the ratio of existing shares held.
The shareholders do not have to make any additional
payment for these shares.
Private Placement is an issue of shares by a company to a
select group of persons under the Section 81 of the
companies act 1956. It is a faster way for a company to raise
Secondary Market refers to a market where securities are
traded after being initially offered to the public in the primary
market and/or listed on the stock exchange.
It is the trading avenue in which the already existing
securities are traded amongst investors.
Banks facilitate secondary market transactions by opening
direct trading and demat accounts to individuals and
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.
Secondary market comprises of Equity market and Debt
Financial instruments deals in secondary
An equity share is commonly referred to as an ordinary share.
It is an form of fractional ownership in which a shareholder, as
a fractional owner, undertakes the entrepreneurial risk
associated with the business venture.
Holders of the equity shares are members of the company
and have voting rights.
These shares are issued by the companies to their
shareholders free of cost by capitalization of accumulated
reserves from the profit earned in the earlier years.
This refers to the issue of new securities to the existing
shareholders, at a ratio to those shares already held.
A taxable payment declared by a company's board of
directors and given to its shareholders out of the company's
current or retained earnings, usually quarterly.
Dividends are usually given as cash (cash dividend), but they
can also take the form of stock (stock dividend) or other
These shareholder do not have voting rights.
Owners of these shares are entitled to a fixed dividend or a
dividend calculated at a fixed rate to be paid regularly before
any dividend can be paid in respect of equity shares.
These shareholders also enjoy priority over the equity
shareholders in the payment of surplus.
Securities and Exchange Board of India
The Securities and Exchange Board of India was enacted on April
12, 1992 in accordance with the provisions of the Securities and
Exchange Board of India Act, 1992
U. K. SINHA is current CMD of
Role of SEBI in Indian Capital Market
Power to make rules for controlling stock exchange :
SEBI has power to make new rules for controlling stock exchange
in India. For example, SEBI fixed the time of trading 9 AM and
5 PM in stock market.
To provide license to dealers and brokers :
SEBI has power to provide license to dealers and brokers of
capital market. If SEBI sees that any financial product is of
capital nature, then SEBI can also control to that product and
To make new rules on carry - forward transactions :
Share trading transactions carry forward can not exceed 25% of
broker's total transactions.90 day limit for carry forward.
To audit the performance of stock market :
SEBI uses his powers to audit the performance of different Indian
stock exchange for bringing transparency in the working of stock
To Stop fraud in Capital Market :
SEBI has many powers for stopping fraud in capital market.
> It can ban on the trading of those brokers who are involved in
fraudulent and unfair trade practices relating to stock market.
> It can impose the penalties on capital market intermediaries if
they involve in insider trading.
To Control the Merge, Acquisition and Takeover the companies :
SEBI sees whether this merge or acquisition is for development of
business or to harm capital market.
To create relationship with ICAI :
SEBI creates good relationship with ICAI for bringing more
transparency in the auditing work.
Introduction of derivative contracts on Volatility Index :
For reducing the risk of investors, SEBI has now been decided to
permit Stock Exchanges to introduce derivative contracts on
To Require report of Portfolio Management Activities :
SEBI has also power to require report of portfolio management
to check the capital market performance.
To educate the investors :
Time to time, SEBI arranges scheduled workshops to educate the
Saha Tapash Rangan/ 2009(capital market and SEBI
regulation). Excel books Publication.
Raste Deepak R./2011(capital market in India &Reforms &
regulation)New century Publication.
M. Tyahiripal raju ,2012 “Initial public offering grade matter
short term and long term” pg. no:3to 5.
Shallu, 2014 “Indian capital market and impact SEBI”
vollume-2, ISSB- 2319-7943,PG no. 1 TO 9.
Government of India
Bhayani rajesh, “secondary market manipulator” Business
standard, 21 February2015.
Shaji vikraman, “Need for cleaner capital market”, the
economic times, 8 January 2010 .