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CAPITAL MARKET

PROLOGUE
DEFINITION OF CAPITAL MARKET
FEATURES
MAIN ELEMENTS
STOCK MARKET
INDIAN ECONOMY AND CAPITAL MARKET AT A

GLANCE
WHY INVEST IN INDIAN CAPITAL MARKETS?
CONCLUSION
CAPITAL MARKET

WHAT IS CAPITAL
MARKET

?
CAPITAL MARKET

PROLOGUE

Capital markets are a sub-part of the financial

system. Conceptually, the financial system


includes a complex of institutions and
mechanism which affects includes a complex of
institutions and mechanism which affects the
generation of savings and their transfers to
those who will invest. It may be said to be made
of all those channels through which savings
become available for investments
CAPITAL MARKET

DEFINATION OF CAPITAL MARKET

Capital market can be defined as:

A market for medium to long-term


financial instruments. Financial instruments
traded in the capital market include shares, and
bonds issued by the Australian Government,
State governments, corporate borrowers and
financial institutions.

CAPITAL MARKET

In other words:

The capital market (securities markets) is


the market for securities, where
companies and the government can raise
long-term funds. The capital market
includes the stock market and the bond
market

CAPITAL MARKET

FEATURES
FEATURES

Engineof
ofgrowth
growth
Engine

Bestregulated
regulatedmarket
market
Best

Efficientcapital
capital
Efficient

securitiesmarkets
markets
securities

Increasingintegration
integration
Increasing

CAPITAL MARKET

regulatoryframework
framework
regulatory

MAIN ELEMENTS

OF
CAPITAL MARMET

CAPITAL MARKET

THREE ELEMENTS OF CAPITAL MARKET


FINANCIAL ASSETS/INSTRUMENTS/SECURITIES
FINANCIAL INTERMEDIARIES
FINANCIAL MARKETS

CAPITAL MARKET

THE MAIN ELEMENTS


FINANCIAL ASSETS/ INSTRUMENTS/SECURITIES
The tangible/physical asset is one whose value depends
on its physical properties such as buildings, machines,
furniture, vehicles and so on.
The entity/economic unit
that offers the future cash flows is the issuer of the
financial instrument and the owner of the security is
the investor. Depending upon the nature of claim/return,
an instrument may be:
CAPITAL MARKET

DEBENTURE/BONDS: Debenture/bonds is a debt

instrument indicating that a company has borrowed


certain sum of money and promise to repay it in future
under clearly defined terms.
TRUST(BOND)INDENTURE: is a complex and

lengthy legal document starting the conditions under


which a bond has been issued.

CAPITAL MARKET

DEBENTURE REDEMPTION RESERVE: is a

requirement in a debenture indenture providing for the


systematic retirement of debenture/bonds prior to their
maturity.

TERM LOANS: is a loan made by a bank/financial

institution to a business having an initial maturity of


more than I year:

CAPITAL MARKET

EQUITY CAPITAL:
Equity capital represents ownership capital, as equity
shareholder collectively own the company. They
enjoy the rewards and risks of ownership.
SOME TERMS:

AUTHORISED EQUITY/SHARE CAPITAL: is

the
number of ordinary share capital that a firm can
raise without further shareholder approval.

CAPITAL MARKET

ISSUED SHARE CAPITAL: The portion of the authorized


capital offered by the company to the investors is the
Issued capital.

SUBSCRIBED SHARE CAPITAL: is the number of

share (capital) outstanding.

PPREFERENCE SHARE CAPITAL: is a unique type of

long term financing in that combines some of the features


of equity as well as debenture. It carries a fixed rate of
dividend and it ranks higher than equity as a claimant to
the income/assets.
CAPITAL MARKET

INITIAL PUBLIC OFFERING(IPO):

The first issue of the equity share to the public by an


unlisted company is called Initial Public Offerings(IPO).

CAPITAL MARKET

CUMULATIVE(DIVIDEND)PREFERENCE SHARES:

are preference shares for which all unpaid dividends in arrears


must be paid along with the current dividend prior to the
payment of dividends to ordinary shareholders.
STRAIGHT PREFERENCE SHARE VALUE/PRICE: is the

price at which a preference share would sell without the


redemption /call feature.

CONVERTIBILITY: Preference share capital may sometimes be

convertible partly/fully into equity shares/debentures at a certain


ratio during a specified period. A variant in India is cumulative
convertible preference shares which combine the cumulative and
convertibility features. It has, however, been a non-starter so far.

CAPITAL MARKET

CONVERTIBLE DEBENTURES: give the holders the

right (option) to change them into a stated number of


shares.

COVERSION RATIO: is the ratio at which a convertible

debenture can be exchanged for shares.

CONVERSION PRICE: is the per share price that is

effectively paid for the shares as the result of exchange of


a convertible debenture.

CAPITAL MARKET

FINANCIAL INTERMEDIARIES:

Financial intermediaries are institutions that channelise


the savings if investors into investments/loans. As
institutional source of finance ,they act as a link
between the savers and the investors which results in
institutionalization of personal savings. Their main
functions is to convert direct financial assets into
indirect securities. The indirect securities offer to
the individual investor better investor alternative then
the direct/primary security by pooling which it is
created, for example, units of mutual funds.
CAPITAL MARKET

FINANCIAL MARKETS:

Financial markets perform a crucial function in the


financial system as facilitating organizations. Unlike
financial intermediaries, they are not a source of funds
but are a link and provide a forum in which suppliers of
funds and demanders of loans/investments can transact
business directly

CAPITAL MARKET

The two key financial markets are the money markets


and the securities markets:
money market: is created by financial relationship

between suppliers and demanders of short term funds


having maturities of one year or less.

securities markets: is a financial relationship created by

a number of institutions and arrangements that allows


suppliers and demanders of long term funds with
maturities exceeding one year to make transactions.

CAPITAL MARKET

TYPES OF MARKET
PRIMARY MARKET
SECONDARY MARKET

CAPITAL MARKET

PRIMARY MARKET

The primary market deals with the issue of new instruments


by the corporate sector such as equity shares, preference
shares and debentures.
Function of primary marketORIGINATION: is the work of investigation and analysis and
processing of new issue proposals.
UNDERWRITING: is a form of guarantee that the new issue
would be sold by eliminating the risk arising from uncertainty
of public response
.
DISTRIBUTION: is the sale of the ultimate investors.

CAPITAL MARKET

CONTD

Abolition of Controller of Capital Issues in 1992.


Constitution of Securities and Exchange Board of India

(SEBI) as the apex regulator.


for capital markets.
Free pricing of equity.
Introduction of book building for raising capital
Relaxation in equity dilution norms allowing large unlisted
firms esp. in the technology.
Progressive changes in the entry norms enabling all
companies to access markets.
CAPITAL MARKET

CONTD

.But subject to high disclosure norms and QIB


participation
Domestic equity raised in last three years at Rs630 bn is
twice the amount
Raised during the preceding decade Rs364 bn
Problem of vanishing companies witnessed in mid nineties
now well taken Care of with strict disclosure norms and
regulatory supervision

CAPITAL MARKET

SECONDARY MARKETS

Stock exchanges discharge three vital functions in the


orderly growth of capital formation:

1.

Nexus between savings and investments

2.

Market place and

3.

Continuous price formation

CAPITAL MARKET

CAPITAL MARKET AT A GLANCE


Second fastest growing economies after China with an

average annual growth rate of more than 8 per cent in the


last three years.
Indian companies may issue shares under Employee Stock
Option Scheme to its employees who are resident outside.
Foreign Institutional Investors are allowed to invest in
India under the Foreign Institutional Investment scheme.
Private equity is allowed as an alternative form of
investment
CAPITAL MARKET

COND

NSE (Indias National Stock Exchange) is the third largest

in the world in the number of trades after NYSE and


NASDAQ.
India has 23 small and 2 big stock exchanges.
The 2 big stock exchanges (National Stock Exchange and
Bombay Stock Exchange) account for 90 per cent of trade.
Over 7000 listed companies on the stock exchanges

largest in the world.

CAPITAL MARKET

COND

39 mutual funds with over 500 schemes for investment.


There are 86 venture capital funds and 54 foreign venture

capital investors.
FIIs can invest on behalf of their clients through sub-accounts.
For normal FIIs, limit for investment in equity is at least 70
per cent while the rest could be invested in debt up to a
maximum limit of 30 per cent.
9040 brokers in cash segment and 1064 in derivative segment
of the market.
122 investment bankers in the market.
58 under writers to support primary issues.
34 foreign venture capital funds &120 Portfolio managers

CAPITAL MARKET

WHY TO INVEST IN INDIAN


CAPITAL MARKET

?
CAPITAL MARKET

BECAUSE:
Indias accounting standards are closer to international

standards.
SEBI has made corporate governance guidelines
mandatory for listed companies.
Mutual funds are permitted to invest overseas up to $3
billion.
Almost 100 per cent risk free electronic settlement
through depository system .

CAPITAL MARKET

CONTD.
In India the transactions are totally electronic on a real

time basis.
Business Week says that of 100 emerging market firms
which are rapidly globalizing 21 are Indian firms.
Economists project India to become the third largest
economy in the world by 2040.

CAPITAL MARKET

CONCLUSION
Indian markets amongst the best

regulated markets in the world.


Need for greater integration with
international markets in terms of
capital flows, products and processes
Need to introduce new age financial
products and to encourage.
participation of new age investors.
CAPITAL MARKET

THANK YOU

CAPITAL MARKET