INDIAN CAPITAL MARKET : INDIAN CAPITAL MARKET By-santosh kumar roll no.0911002280 course- PGPM sem- 3 WHAT IS CAPITAL MARKET : A capital market is market for securities(Debt or Equity),where business enterprises (Companies) and government can raise long term funds. WHAT IS CAPITAL MARKET CAPITAL MARKET IS DIFFERENT FROM MONEY MARKET : Capital market- Money is provided for longer than a year.
Money market-money is provided for short terms(up to one year) CAPITAL MARKET IS DIFFERENT FROM MONEY MARKET CAPITAL MARKET IS ESSENTIAL PART OF FINANCIAL SYSTEM : Because any financial system cannot provide efficient growth to a country without a efficient and well regulated capital market.
Capital market is heart of any financial system. CAPITAL MARKET IS ESSENTIAL PART OF FINANCIAL SYSTEM WHAT IS FINANCIAL SYSTEM? : There are areas or people with surplus funds and there are those with a deficit. A financial system or financial sector functions as an intermediary and facilitates the flow of funds from the areas of surplus to the areas of deficit. A Financial System is a composition of various institutions, markets, regulations and laws, practices, money manager, analysts, transactions and claims and liabilities. WHAT IS FINANCIAL SYSTEM? FINANCIAL SYSTEM : FINANCIAL SYSTEM TYPES FANANCIAL MARKET : Money Market- The money market ifs a wholesale debt market for low-risk, highly-liquid, short-term instrument. Funds are available in this market for periods ranging from a single day up to a year. This market is dominated mostly by government, banks and financial institutions.
Capital Market - The capital market is designed to finance the long-term investments. The transactions taking place in this market will be for periods over a year.
Forex Market - The Forex market deals with the multicurrency requirements, which are met by the exchange of currencies. Depending on the exchange rate that is applicable, the transfer of funds takes place in this market. This is one of the most developed and integrated market across the globe.
Credit Market- Credit market is a place where banks, FIs and NBFCs purvey short, medium and long-term loans to corporate and individuals. TYPES FANANCIAL MARKET CAPITAL MARKET INSTRUMENT : CAPITAL MARKET INSTRUMENT Capital Market Instruments
The capital market generally consists of the following long term period i.e., more than one year period, financial instruments; In the equity segment Equity shares, preference shares, convertible preference shares, non-convertible preference shares etc and in the debt segment debentures, zero coupon bonds, deep discount bonds etc.
Hybrid instruments have both the features of equity and debenture. This kind of instruments is called as hybrid instruments. Examples are convertible debentures, warrants etc. CAPITAL MARKET INSTRUMENTS : Fixed rate bonds
Floating rate bond
Asset backed securities
Mortgage backed securities
Interest rate swaps CAPITAL MARKET INSTRUMENTS TYPES OF CAPITAL MARKET : Primary market
Secondary market TYPES OF CAPITAL MARKET PRIMARY MARKET : In the primary market, securities are offered to the public for subscription for the purpose of raising capital or fund. PRIMARY MARKET SECONDARY MARKET : Secondary market refer 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.
Majority of the trading is done in the secondary market. SECONDARY MARKET MAJOR EVENTS OF INDIAN CAPITAL MARKET : By 1830’s business in corporate stock started with East India Company.
BSE founded in1875.
It can be said that in1899 the stock exchange at Bombay was consolidated.
Electronic Stock Exchange started in 1992.
NSE founded in1992.(as a competitor of BSE)
NSDL founded in 1996. NSDL- National Security Depositor Limited MAJOR EVENTS OF INDIAN CAPITAL MARKET MAJOR EVENTS OF INDIAN CAPITAL MARKET : 7.In 1993- private sector entry allowed in mutual fund.
8.In march 1995-NSE started a limit order book market, instead of open outcry.
9.In 1992- FII(Foreign Institutional Investor) were allowed in Indian security market. Indian companies were allowed to raise GDR & FCCBS. GDR- global depository receipt FCCBS- foreign currency convertible bonds MAJOR EVENTS OF INDIAN CAPITAL MARKET INDIAN CAPITAL MARKET MAY BE DIVIDED INTO TWO STAGES : 1947-91:-very much controlled and restricted by Indian Govt.
1991 onwards:-liberalized, progressive and regulated by .SEBI INDIAN CAPITAL MARKET MAY BE DIVIDED INTO TWO STAGES WHY IN 1991INDIAN CAPITAL MARKET LIBERALIZED? : Because of
increasing oil price
Double digit inflation
Foreign loan chances of default
creates shortage of adequate capital and brought economic crisis for India. WHY IN 1991INDIAN CAPITAL MARKET LIBERALIZED? CHANGES IN CAPITAL MARKET POLICY AND GROWTH RATE OF INDIA : CHANGES IN CAPITAL MARKET POLICY AND GROWTH RATE OF INDIA Since independence India followed democratic socialism-
Growth rate - 1951-56 - 3.6%
War period - 1961 -66 - 2.5%
Always remains below - 5%
1991 onwards liberalized economic policy
8th plan 1992-97 - 6.7% growth rate
and then afterwards always remains more than 5%.
In 2008 India was world’s second fastest growing major economy even in world slowdown-2009 - growth rate 6.1% GROWTH PATTERN OF INDIAN STOCK MARKET : GROWTH PATTERN OF INDIAN STOCK MARKET Slide 19: 19 Liberaliesed Capital Market Policy Builded Robust Economic Platform Steadily increasing Forex reserves offer adequate security against any possible currency crisis or monetary instability Falling Dollar inflates the India’s external debt Increased confidence of investors in Indian companies has led to a surge in cross border borrowing by corporate houses In 2007-08 (till 28 March), Forex reserves witnessed a growth of approximately 55 percent over 2006-07. India’s Forex reserves are in excess of external debt… …the decreasing external debt to GDP ratio indicates that India has a sound economic platform Source: RBI Statistics REGULATION OF CAPITAL MARKET : Regulating agency oversee the capital market in their designated jurisdictions to ensure that investors are protected against fraud, among other duties.
Indian capital market regulatory authority is-SEBI-Securities And Exchange Board Of India
SEBI was established in1988 REGULATION OF CAPITAL MARKET MAJOR INDIAN STOCK MARKET INDICES : NSE
S&P CNX 500
SOME OTHER INDICES ARE IT index power index FMCG index etc. MAJOR INDIAN STOCK MARKET INDICES CAPITAL MARKET AND POVERTY REDUCTION : It works in two ways to reduce poverty.
In short term it can move in opposite direction but in long term it always works.
8-9% growth is needed in India to eliminate pervasive poverty within a generation.
Singapore is an example of this .Till 1947 it was a fishing village but amount & efficiency of capital market transfer it in a developed country. CAPITAL MARKET AND POVERTY REDUCTION FIRST WAY TO REDUCE POVERTY : Direct financial resources by private sectors into the areas where their productivity is highest .
Faster economic growth.
More employment, income .
Reduce poverty. FIRST WAY TO REDUCE POVERTY SECOND WAY TO REDUCE POVERTY : Due to investment in high productive sectors by private player, government for has more money for social sectors that helps to reduce poverty. SECOND WAY TO REDUCE POVERTY MAJOR PROBLEMS OF INDIAN CAPITAL MARKET : Less developed debt market .
Skittishness about IPO.
Stock market is very much vulnerable to FII.
Frequent scams in stock market reduced public faith.
Accounting standard is not very much at par with international standard(e.g.-Satyam fraud by manipulating in accounts).
Market liberalization has been slower in banking sector MAJOR PROBLEMS OF INDIAN CAPITAL MARKET HOW EFFICIENT CAPITAL MARKET CAN BE DEVELOPED : Disclosure of relevant financial information.
Limiting transaction cost for securities.
Promoting transparency of market operation.
Efficient and progressive regulating agency and policy.
Better surveillance and monitoring system. HOW EFFICIENT CAPITAL MARKET CAN BE DEVELOPED FUTURE OF INDIAN CAPITAL MARKET : High saving rate 25% of 1993-97 of GDP(too much higher than U.S. & EUROPE).
The share of saving invested in financial assets is still small. 3%-1971 > 6%-1981 > 10%-1991
When this saving will infused in capital market instead of physical assets(like-GOLD, LAND, BUILDING etc.) Indian growth rate will be unbelievable. FUTURE OF INDIAN CAPITAL MARKET PRESENTED BY : PRESENTED BY Santosh kumar
SESSION –JAN 2009