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CapitalMarket
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Capital Market
A market for long term funds
Aids economic growth through capital
formation by: Issue of primary securities Issue of secondary
securities Secondary market transactions
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Mobilise long-term savings to financelong-term investments.
Provide risky capital in the form of equity Encourage broader
ownership of
productive assets. Provide liquidity to investors Lower the
costs of transactionDisseminate information
Enable valuation of assets Insurance against risk in the
derivativemarketDirects the flow of funds into efficientchannels
through investment, disinvestmentand reinvestment.
Market
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A market for new issues Leads to capital formation Nature of
fund raising
Domestic
equity and debt issues External
GDRs, ADRs and ECBs FDI, FII and NRI deposits
Primary Market
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FDI and FII
FDIis an investor which picks up more than
10 percent stake in a companys equity.
FIIare In the form of portfolio investment
both in the primary and secondary capitalmarket. They help in
bridging the short-to-medium term savings-investment gap.
Data for 2003-05 India(in US $bn)
Total net FDI flows 11
Total portfolio investments 29
Other non-FDI flows 25
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Fund Raising in the PrimaryMarket
Public issue by prospectus
Private placement
Rights issues
Preferential issues
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Secondary Market
A market for outstanding securities
Facilitates liquidity, marketability, andvaluation of
securities
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Segregation of IndianSecondary Market
Secondary market for corporate andfinancial intermediaries
Secondary market for government
securities and PSU bonds
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Market
Under British ruleNot organised and developed
Post independence Small size and supervised byCCI In 1950s
Rampant speculation; Governmentenacted Securities Contract
(Regulations) Act and
Companies Act, 1956;Development of FinancialInstitutions. In
1960s Ban on badla, UTI set up in 1964 In 1970s Badla resumed;
Promulgation of theDividend Restriction Ordinance slump in BSE
sensex;
FERA issues revive stock markets In 1980s Small investor
participation; Introductionof PSU bonds; popularity of convertible
debentures. In 1990s Capital Issues (Control) Act
repealed.Emergence of SEBI; Free pricing; entry of new playersand
new trading mechanism; Capital market scams
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The 1991-92 Securities Scam (Harshad Mehta
Scam)
Misuse of public sector banks, mutual funds, bank
receipts, and ledger accounts; a bank scam
The 2001 Ketan Parekh Scam
Misuse of pay orders, private sector banks and
cooperative banks; a securities scam.
Capital Market Scams
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Reforms in the CapitalMarket
Specialised Regulator Emergence of specialised intermediaries
Entry to FIIs Pricing of securities through book building
Access to international markets Emphasis on corporate governance
Screen-based trading system Dematerialisation of securities
Derivatives trading
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