Role of Capital Marketss

8/6/2019 Role of Capital Marketss..

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FINANCIAL SERVICES

MANAGEMENT

Project on

ROLE OF CAPITAL MARKETSIN ECONOMIC

DEVELOPMENT


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Financial System

2

Suppliers of funds

(Mainly households)Flow of financial services

Incomes , and financial

claims

Seekers of funds

Mainly business firms

and government)

Flow of funds (savings)


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C

apital Market Resources

3

Organized Indian Financial System

Money Market

InstrumentCapital Market

Instrument

Forex

Market

Capital

Market

Money

Market

Credit

Market

Primary Market

Financial

Instruments

Financial

Markets

Financial

Intermediaries

Second ary Market

Regulators


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Wh

yC

apital Markets Exist?Transfer of capital

Liquidity

Measure of the value of the asset.

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Importance OfCapitalMarkets

Pooling the capital resources developing

enterprises investors

Solve the problem of paucity of funds

Trickle down Effect

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Classification OfCapitalMarket

Industrial securities market

Primary Markets Secondary Markets

Government security market

Long term market

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Factors Contributing To GrowthOfIndian Capital Market

Legislative measures

Growth of underwriting business

Increasing awareness of investment opportunities

Growing public confidence

Setting up of SEBI

Mutual FundsCredit Rating Agencies

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IndianCapital MarketDeficiencies

Lack of transparency

Physical settlement

Variety of manipulative practices

Institutional deficiencies

Insider trading8


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Futures Daniels and VanHoose 9

Indian Capital Market

Market Instruments Intermediaries

Primary Secondary

Equity DebtHybrid

Regulator

Brokers

Investment Bankers Stock Exchanges

Underwriters

SEBI

Players

Corporate IntermediariesCRA Banks/FI FDI /FIIIndividual


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Developed Financial SectorParameters:

Increase financial institutions and services

Rise in the amount of funds

Improvement in the efficiency

Ability to gain access to financial services.

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C

apital Market and FDI

FDI is directly linked with the development of

CAPITAL MARKET.

FDI was about 25 percent in the period 1986-90

and 20 percent in 1991-95

Increased to 34% in 1996-99

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Table 1: FDI Investment in Selected Economies

(Rs. in bn)

Years

Country 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 05

China 4.37 11.16 27.52 33.78 35.85 40.18 44.23 43.75 40.31 40.77 46.84 57.74 53.5 60.6 72.4

India 0.16 0.26 0.58 0.97 2.14 2.43 3.35 2.63 2.16 2.31 3.40 3.44 4.26 5.33 6.59

Brazil 0.97 1.58 0.80 2.59 5.48 10.49 18.75 28.85 28.57 32.77 22.45 16.59 10.1 18.1 15.6

Malaysia 3.99 5.18 5.21 4.34 4.18 5.08 5.11 2.71 3.89 3.78 0.55 3.20 2.47 4.62 3.96

Source: UNCTAD, World Investment Report Series


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Table 2: Portfolio Investment in Selected Economies

(Rs. in bn)

Years

Country 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

China 0.4 1.9 5.7 0.8 0.6 6.9 0.8 4.0 12.4 17.6

India 1.6 4.0 2.6 -0.6 2.3 2.8 2.0 1.0 8.2 8.8

Brazil 2.8 5.8 5.1 -1.8 2.6 3.1 2.5 2.0 3.0 2.1

Malaysia 2.2 2.7 8.0 -0.4 0.1 -1.8 -0.7 -0.1 1.3 4.4

Source: Global Development Finance, World Bank.


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AligningCapital MarketWith Economic Growth

The direct influence of capital market is seen inthe growth of corporate sector that have reduced

their dependence on the banks as a source of

finance instead prefer to raise equity in the

capital market.

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Development Of Stock MarketsReduction in transaction and liquidity costs:

Resource pooling and saving mobilization:

Acquisition of information about firms:

Corporate control

Risk diversification

Regulation

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SEBIA

ndItsImpact

SEBI was empowered to :-

examine records and summon persons and

impose penalties

regulation in order to minimize unnecessary

wastage of time fixed time schedules for

various functions like registration andrenewal on the web site were drafted and

implemented.

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SEBI

(DIP)

guidelines 2000Defining and standardizing the attendant

process stage after stage relating to public

issues.

Getting the intermediary who carries out

these process to adhere to strict discipline

and code of conductMaking of obligatory on the issuer to

publish all information

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DevelopmentIn The IPOMarket Since The 90sn

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Table 3: Capital Raised through Primary Markets (IPOs) in India

(Rs. in bn)

Years

1995-

96

1996-

97

1997-

98

1998-

99

1999-

2000

2000-

01

2001-

02

2002-

03

2003-

04

2004-

05

2005-

06

Issues 1426 753 62 32 65 124 20 6 21 23 79

Capital

Raised

142.4 115.6 28.6 50.2 62.6 53.8 65.1 10.4 34.3 122.6 109.4


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Table 4: FII Investment in Indian Equity Market

(Rs. crore)

Year FII in Equity Market

1992-93 4.27

1993-94 5444.60

1994-95 4776.60

1995-96 6720.90

1996-97 7386.20

1997-98 5908.45

1998-99 -729.11

1999-2000 9765.13

2000-01 9682.52

2001-02 8272.90

2002-03 2668.90

2003-04 44000.03

2004-05 41416.45

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ListingAgreement Of StockExchanges

Listing fees

Listing norms

Voluntary delisting

Compulsory delisting

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EBICommittee On DerivativesTrading

Dr. L C Gupta Committee

Report submitted in March 1998 consists of

2 parts-

o Economic justification & regulatory structure for

the introduction of derivatives trading in India

o Suggestive byelaws for the trading & settlement

of derivatives contracts.

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ConditionsConditions

Recommendations Trading rules different from cash trading

Market manipulation will be greater

No restriction on entry to all potential eligible players

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Trading through online screen-based systemSeparate clearing corporation

Online surveillance capability

At least 50 members


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Chinese

Capital Market

Largest emerging economy in the world in the recent

times.

Shifted from agriculture to industry and after the

Initiationof the process of globalization and liberalization.

The gross domestic savings over gdp ratio has increased

from 34.0 in 1985 in 1985 to 42.2 in 2004.

The main source of capital in the economy is the huge

savings from the house hold sector that flows towards

industrial sectors and government on the other hand lacks

funds due to excessive investments in various projects.

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Market Capitalization of Stock Exchanges in Different Countries

(as on 2005)

Country Market Cap (US$ billion) % of World

1. USA 15,517 39.5

1. Japan 4,079 10.4

1. United Kingdom 3,067 7.8

1. France 1,828 4.7

1. Germany 1,256 3.2

1. Canada 1,239 3.21. Hong Cong 1,001 2.6

1. Switzerland 872 2.2

1. Italy 788 2.0

1. Spain 688 1.8

1. Australia 687 1.8

1. Russia 592 1.5

1. South Korea 557 1.4

1. India (BSE) 506 1.3

1. Taiwan 475 1.2

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Future reforms forChinese CapitalMarket

Adaptation of new economic growth model

Rapid and fast growth of the private sector

Remarkable investor demand and need for pension

reform and

Chinas entry in WTO as a member.

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Group Members ADITYA DAGA (07)

BHAVIKA JAIN (18)MAYUR KHATRI (25)

NIRAJ PARWANI (37)

RAHUL VAHI (54)

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Documents

Role of Capital Marketss