Capital Market In India

Capital Market In India

Capital Market In India in Detail


Meaning and Work of Capital Market:


The capital market is a market where buyers and sellers engage in the trade of financial securities like bonds, stocks, etc. The buying/selling is undertaken by participants such as individuals and institutions. Capital market consists of primary markets and secondary markets. Primary markets deal with the trade of new issues of stocks and other securities, whereas secondary market deals with the exchange of existing or previously-issued securities. Another important division in the capital market is made on the basis of the nature of security traded, i.e. stock market and bond market.

Components of Financial System:


A financial system refers to a system which enables the transfer of money between investors and borrowers. A financial system could be defined at an international, regional or organizational level. The term “system” in “Financial System” indicates a group of complex and closely linked institutions, agents, procedures, markets, transactions, claims, and liabilities within an economy. There are five components of Financial System which is discussed below:
1. Financial Institutions: 

It ensures smooth working of the financial system by making investors and borrowers meet. They mobilize the savings of investors either directly or indirectly via financial markets by making use of different financial instruments as well as in the process using the services of numerous financial services providers. They could be categorized into Regulatory, Intermediaries, Non-intermediaries and Others. They offer services to organizations looking for advises on different problems including restructuring to diversification strategies. They offer a complete series of services to the organizations who want to raise funds from the markets and take care of financial assets, for example, deposits, securities, loans, etc.
2. Financial Markets:

 A Financial Market can be defined as the market in which financial assets are created or transferred. As against a real transaction that involves the exchange of money for real goods or services, a financial transaction involves the creation or transfer of a financial asset. Financial Assets or Financial Instruments represent a claim to the payment of a sum of money sometime in the future and /or periodic payment in the form of interest or dividend. There are four components of the financial market are given below:

I. Money Market:

 The money market is 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 the government, banks and financial institutions.

II. Capital Market:

 The capital market is designed to finance long-term investments.  The transactions taking place in this market will be for periods over a year.

III. Foreign Exchange Market: 

The Foreign Exchange 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 markets across the globe.

IV. Credit Market:

 A credit market is a place where banks, Financial Institutions (FIs) and Non-Bank Financial Institutions (NBFCs) purvey short, medium and long-term loans to corporate and individuals.
3. Financial Instruments: 

This is an important component of the financial system. The products which are traded in a financial market are financial assets, securities or other types of financial instruments. There is a wide range of securities in the markets since the needs of investors and credit seekers are different. They indicate a claim on the settlement of principal down the road or payment of a regular amount by means of interest or dividend. Equity shares, debentures, bonds, etc. are some examples.
4. Financial Services: 

It consists of services provided by the Asset Management and Liability Management Companies. They help to get the required funds and also make sure that they are efficiently invested. They assist to determine the financing combination and extend their professional services up to the stage of servicing of lenders. They help with borrowing, selling and purchasing securities, lending and investing, making and allowing payments and settlements and taking care of risk exposures in financial markets. These range from the leasing companies, mutual fund houses, merchant bankers, portfolio managers, bill discounting and acceptance houses. The financial services sector offers a number of professional services like a credit rating, venture capital financing, mutual funds, merchant banking, depository services, book building, etc. Financial institutions and financial markets help in the working of the financial system by means of financial instruments. To be able to carry out the jobs given, they need several services of financial nature. Therefore, financial services are considered as the 4th major component of the financial system.
5. Money: 

 It is understood to be anything that is accepted for payment of products and services or for the repayment of debt. It is a medium of exchange and acts as a store of value. It eases the exchange of different goods and services for money.

Securities Exchange Board India (SEBI)


The Securities and Exchange Board of India (SEBI) is the designated regulatory body for the finance and investment markets in India. The board plays a vital role in maintaining stable and efficient financial and investment markets by creating and enforcing the effective regulation in India’s financial marketplace. India’s SEBI is similar to the U.S. Securities and Exchange Commission (SEC).
The main functions of SEBI are as follows:
1. To regulate the business of the stock market and other securities market.
2. To promote and regulate the self-regulatory organizations.
3. To prohibit fraudulent and unfair trade practices in the securities market.
4. To promote awareness among investors and training of intermediaries about the safety of market.
5. To prohibit insider trading in the securities market.
6. To regulate the huge acquisition of shares and take over of companies.

Capital Market In India



Indian or Industrial Securities Market

1) Primary Market:

“Primary market” may also refer to a market in art valuation.
The primary market is the part of the capital market that deals with issuing of new securities. Primary markets create long-term instruments through which corporate entities raise funds from the capital market.
In a primary market, companies, governments or public sector institutions can raise funds through bond issues and corporations can raise capital through the sale of new stock through an initial public offering (IPO). This is often done through an investment bank or finance syndicate of securities dealers. The process of selling new shares to investors is called underwriting. Dealers earn a commission that is built into the price of the security offering, though it can be found in the prospectus.
Instead of going through underwriters, corporations can make a primary issue or right issue of its debt or stock, which involves the issue by a corporation of its own debt or new stock directly to institutional investors or the public or it can seek additional capital from existing shareholders.
Once issued, the securities typically trade on a secondary market such as a stock exchange, bond market or derivatives exchange.
2) The Secondary Market:

The secondary market is where securities are traded after the company has sold all the stocks and bonds offered on the primary market. Markets such as the New York Stock Exchange (NYSE), London Stock Exchange or Nasdaq are secondary markets. On the secondary market, small investors have a better chance of buying or selling securities, because they are no longer excluded from IPOs due to the small amount of money they represent. Anyone can purchase securities on the secondary market as long as they are willing to pay the price for which the security is being traded. On the secondary market, a broker typically purchases the securities on behalf of an investor. The price of the security fluctuates with the market, and the cost to the investor includes the commission paid to the broker. The volume of securities traded also varies from day to day, as demand for the security fluctuates. The price paid by the investor is no longer directly related to the initial price of the security as determined by the first issuance, and the company that issued the security is not a party to any sale between two investors, except in the case of a company stock buyback.
Capital Market In India


Major Capital Markets

Bond Market:

It is defined as the environment in which the issuance and trading of debt securities occur. The bond market primarily includes government-issued securities and corporate debt securities and facilitates the transfer of capital from servers to the issuers or organizations requiring capital for government projects, business expansions, and ongoing operations.

Types of Bond Markets:

The Securities Industry and Financial Markets Association (SIFMA) classifies the broader bond market into five specific bond markets.
1) Corporate
2) Government and agency
3) Municipal
4) Mortgage-backed, asset-backed, and collateralized debt obligations
5) Funding
6) Participants
Bond Market Participants:

Bond market participants are similar to participants in most financial markets and are essentially either buyers (debt issuer) of funds or sellers (institution) of funds and often both.
1) Participants include:
2) Institutional investors
3) Governments
4) Traders
5) Individuals

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