1. CAPITAL MARKET Chapter 2 “Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

2. Learning Goals:
To provide the basics of financial market and its importance
To understand the characteristics of various financial instruments
To know the various participants in the capital market
To explain the role of the regulator in the financial market 
To discuss the contours of development of the Indian capital market
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

3. Introduction Sweeping changes Spurt in the amount mobilised,SEs
Number of new instruments
Mutual funds
Active secondary market
Regulatory changes
Increased awareness
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

4. Financial Market Capital market, Money Market, Foreign Exchange market
Benefits:
Flow of Funds, Capital formation,
Risk allocation, Liquidity,
wealth function
Capital Market and Money Market
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

5. Capital Market Instruments
‘Securities’defined by SCRA
Fixed Income Securities
Preference shares
Bonds: Government bonds or treasury bonds.
Municipal bonds,Corporate bonds,Foreign bonds
Equity Shares
MF units
Derivative securities
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

6. Capital Market Participants
Stock exchanges
Brokers,
Sub brokers
Custodians
Depositories, Depository participants
Merchant bankers
Bankers to the issue
Underwriters
Contd…
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

7. Registrars to the issue Portfolio managers Mutual funds
Foreign Institutional Investors (FII s)
Debenture trustees
Credit rating agencies,
Collective Investment Schemes and,
Venture capital funds
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

8. CAPITAL MARKET:REGULATORY FRAMEWORK
The SEBI Act ,1992.
The Companies Act ,1956
The Securities Contract (Regulation) Act,1956
The Depositories Act,1996
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

9. Role of SEBI in Indian Capital Market
SEBI is an autonomous organization.
Functions as the market regulator or the watch dog of the capital market.
Comparable to the Securities Exchange Commission (SEC) in the US capital market.
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

10. SEBI guidelines : Primary market
Disclosure and Investor Protection(DIP) Guidelines 2000:
Salient Features:
Eligibility norms for public issues
Promoters’ contribution
Contents of offer documents
Pricing of Issues
Book building
Green shoe option
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

11. SEBI guidelines : Secondary market
1. Recognition of stock exchanges 2. Registration of brokers, sub-brokers and other intermediaries 3. Listing of securities
Contd…
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

12. 4. Trading in securities
5. Controlling volatility
6. Risk management

13. Indian Capital Markets - Review
Structure of the market
Securities markets consists of issuers, investors and intermediaries
According to the SEBI- NCAER Survey in March2003,an estimate of 13 million households have been found to have investments in capital market. This is roughly 7% of the total Indian households .
Contd…
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

14. The Society for Capital Market Research and Development estimated a total of 20 million investors in 1997.
The number of investor accounts with the Depositories is around as on March2007.
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

15. Indian Capital Markets - Review
Capital Mobilised
Considerable increase in amount mobilised, number of IPOs issued over the period of years.
Total amount raised from the market through equity and debt issues and through private placement has also gone up considerably.
Contd…
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

16. Euro issues has shown a phenomenal rise over the years.
According to a study by Ernst and Young, the Indian IPO market has been ranked 7th globally in terms of the proceeds and 5th largest in terms of the number of issues in the year 2007.
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

17. Indian Capital Markets - Review
Secondary Market
No of stock exchanges and brokers
Index behaviour and market capitalisation
Turnover
Volatility of market
Derivatives market
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

18. Conclusion
A vibrant capital market enables the corporate sector to access funds for investment.
The formation of SEBI paved the way for an orderly growth of the market intermediaries in India.
Investor protection and development of the securities market are kept as the two primary objectives of regulation in India .
Contd…
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

19. Penetration of the corporate bond market is still low in india.
Private placement market is dominating over the public issue market.
The potential for growth in capital market still exists in India.
Contd…
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

20. Market Intermediaries
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

21. Resource Mobilisation in Primary Market
“Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.

22. Market Turnover “Financial Services” by R Shanmugham
Copyright  2009 Wiley India Pvt. Ltd. All rights reserved.