Introduction to Capital Market Mrunal Joshi

Introduction Economy and Financial System Capital Market and Financial System Meaning of Capital Market: It is a market for long-term funds—both equity and debt—and funds raised within and outside the country. The capital market aids economic growth by mobilising the savings of the economic sectors through financial system and directing the same towards channels of productive use.

Indian Financial System Informal (Unorganised) Formal (Organised) Regulators: MoF, SEBI, RBI, IRDA Financial Institutions (Intermediaries) Financial Markets Financial Instruments Financial Services Informal (Unorganised) Money Lenders, Local Bankers, Traders, Landlords MoF: Ministry of Finance SEBI: Security Exchange Board of India RBI: Reserve Bank of India IRDA: Insurance Regulatory and Development Authority

Financial Institutions (Intermediaries) Banking Institutions Commercial Banks, Cooperative Banks Non-Banking Institutions Finance Companies Development Finance Institutions: IDBI, SIDBI, NABARD, SFCs, ECGC, DIGC Mutual Funds Insurance and Housing Finance Companies

Primary and Secondary Market of: Financial Markets Capital Market Equity Market Primary Market * Public Issue * Private Placement (Domestic and International) Secondary Market NSE, BSE, OTCEI, ISE, Regional SEs Derivative Market (F&O) (SEs Based) Stock and Index based Derivatives Debt Market Private Corporate Debt, PSU Bonds, Govt Sec. Mkt Money Market Primary and Secondary Market of: Treasury Bill, Call Money Mkt, Commercial Bills, Commercial Papers, Certificates of Deposit, Term Money

Financial Instruments Types Primary Securities Secondary Securities Terms: Short, Medium, Long

Financial Services Depositories Custodial Credit Rating Factoring Forfaiting Merchant banking Leasing Hire Purchasing Guaranteeing Portfolio Management Underwriting

Notes: IDBI : Industrial Development Bank of India IFCI : Industrial Finance Corporation of India SIDBI : Small Industries Development Bank of India IDFC : Infrastructure Development Finance Company Limited NABARD: National Bank for Agriculture and Rural Development EXIM Bank : Export-Import Bank of India SFC : State Financial Corporation SIDC : State Industrial Development Corporation ECGC : Export Credit Guarantee Corporation of India DICGS : Deposit Insurance and Credit Guarantee Corporation OTC : Over the Counter NHB : National Housing Bank

Importance of capital market Mobilize long-term savings to investment Provides equity capital to entrepreneurs Productive use of financial resources Provides liquidity Lower cost of transaction and information Competitive pricing in Capital allocation Quick valuation of financial instrument Insurance against investment risk – Derivatives Wider participation – network of institutions and experts Improvement in operational efficiency

Recent Trend in Capital Market Economic Growth: growth is projected to rebound to 7.2 per cent in Financial Year (FY) 2017-18 and further to 7.7 per cent in FY 2018-19  (IMF), ET April 21, 2017 Inflation: While the consumer price inflation (CPI) eased to 2.99% in April from 3.89% in March, the WPI inflation fell sharply to 3.85% in April from 5.3%. (HT, July 12 2017) (Source: https://tradingeconomics.com/india/inflation-cpi)

Primary Market: In the first nine months of 2016, 21 IPOs from across sectors have raised Rs 19, 379.10 crore, the highest for the January-September period since 2007, when 81 IPOs raised Rs 28, 993.65 crore. (ET, Oct 29, 2016)

Secondary Market: The market capitalisation of NSE and BSE has surged by 37% in the past 1 year. The turnover of the cash segment of stock exchanges across India has increased by 55% from 2013–2014 to 2014–2015. Derivatives Market: The equity derivatives market turnover on the Indian exchanges increased from Rs. 4,74,308 billion in FY 2014 to Rs. 759692 billion in FY 2015. Mutual Funds: As on March 31, 2015, the number of MFs registered with the SEBI was 47; this number remained the same until the end of September 2015. While there were 1,638 schemes in 2013–2014, there were 1,884 MF schemes as on March 31, 2015. Foreign Institutional Investor in India: In 2015–2016, the net FPI investments were negative in most of the months. In July 2015, the net investment of Rs. 360,460 million (US$ 6,009 million) by FIIs was the highest monthly net investment in 2015–2016. The number of SEBI-registered FIIs declined to 1,444 in 2014–2015 from 1,710 in the previous year. In 2014–2015, the net FII investment in equity surged by 40%, compared to a decline of 43% in the previous fiscal year. The FII gross turnover in the futures and options (F&O) segment of the stock exchanges in 2014–2015 was Rs. 124,648,816 million, which was 8.2% of the total turnover in the F&O segment in the Indian capital markets.

References Pathak, B. V. (2014). Indian Financial System (Fourth Ed.): Pearson Education India. A Review Indian Securities Market. (2015) (Vol. XVIII, pp. 86-92). Mumbai: National Stock Exchange of India.