CAPITAL MARKET IN INDIA

Prepared By

Dr. Rajanikant Verma

INTRODUCTION

A capital market is a market for securities (debt or equity), where

business enterprises (companies) and governments can raise

long-term funds. It is defined as a market in which money is

provided for periods longer than a year, as the raising of short-

term funds takes place on other markets (e.g., the money market).

The capital market includes the stock market (equity securities)

and the bond market (debt). Financial regulators, such as the UK's

Financial Services Authority (FSA) or the U.S. Securities and

Exchange Commission (SEC), oversee the capital markets in their

designated jurisdictions to ensure that investors are protected

against fraud, among other duties.

OVERVIEW

During last 20 years or so, the capital market in India has

witnessed growth in volume of funds raised as well as of

transactions.

The changes in economic scenario and the economic growth

have raised the interest of Indians as well as foreign institutional

investors in the Indian capital market.

The buoyancy in the capital market has appeared as a result of

increasing industrialization ,growing awareness ,globalization of

the capital market ,etc. several financial institutions, financial

instruments, and financial services have emerged as a result of

economic liberalization policy of the government of India. The

capital market has two independent segments: the primary

market and the secondary market.

STOCK MARKET

PRIMARY MARKET

Primary market refers to the set up which helps the industry to raise funds by issuing different type of securities .Since 1991/92, the primary market has grown fast as a result of the removal of investment restrictions in the overall economy and a repeal of the restrictions imposed by the Capital Issues Control Act. In1991/92, Rs62.15 billion was raised in the primary market. This figure rose to Rs276.21 billion in 1994/95. Since 1995/1996, however, smaller amounts have been raised due to the overall downtrend in the market and tighter entry barriers introduced by SEBI for investor protection (Table 1).

The efficient operation of the primary market is possible by the

financial intermediaries and the financial institutions that arrange

long-term financial transaction for their clients.

×Secondary market Secondary market refers to the system for the subsequent sale

and purchase of securities.

India has seen a tremendous change in the secondary market

for equity. Its equity market will most likely be comparable with

the world’s most advanced secondary markets within a year or

two. The key ingredients that underlie market quality in India’s

equity market are:

• Exchanges based on open electronic limit order book;

• Nationwide integrated market with a large number of informed

traders and fluency of short or long positions; and

• No counterparty risk.

MARKET PARTICIPANTS

SECURITIES AND EXCHANGE BOARD OF INDIA

The Securities and Exchange Board of India (frequently

abbreviated SEBI) is the regulator for the securities market in

India. It was formed officially by the Government of India in

1992 with SEBI Act 1992 being passed by the Indian

Parliament. SEBI is headquartered in the popular business

district of Bandra - Kurla complex in Mumbai, and has Northern,

Eastern, Southern and Western regional offices in New Delhi,

Kolkata, Chennai and Ahmadabad.

Controller of Capital Issues was the regulatory authority before

SEBI came into existence; it derived authority from the Capital

Issues (Control) Act, 1947.

Functions

Its main functions are providing for:-

a) regulating the business in stock exchanges and any other securities

markets.

b) registering and regulating the working of stock brokers, sub-brokers,

share transfer agents, bankers to an issue, trustees of trust deeds,

registrars to an issue, merchant bankers, underwriters, portfolio

managers, investment advisers and such other intermediaries who

may be associated with securities markets in any manner.

c) registering and regulating the working of the depositories,

participants, custodians of securities, foreign institutional investors,

credit rating agencies and such other intermediaries as the Board

may, by notification, specify in this behalf.

d) registering and regulating the working of venture capital funds and

collective investment schemes including mutual funds;

e) prohibiting fraudulent and unfair trade practices relating to securities

markets;

f) prohibiting insider trading in securities;

g) regulating substantial acquisition of shares and takeover of companies;

h) calling for information from, undertaking inspection, conducting inquiries

and audits of the stock exchanges, mutual funds and other persons

associated with the securities market and intermediaries and self-

regulatory organizations in the securities market;

PARTICIPANTS IN INDIAN CAPITAL MARKET

EMERGING TRENDS IN INDIAN CAPITAL MARKET

The process of structural changes started in 1988 with establishment of SEBI as an

administrative body . Some of the characterized features and components that

have emerged in Indian capital market are:-

a) investor’s protection, grievance and education

b) Depositories and dematerialization

c) Derivatives

d) Book-building

e) Buy-back of shares

f) Securities lending scheme

g) Rolling settlement

h) Green shoe option

i) Merchant bankers

j) Portfolio manager

k) Mutual funds

BOOK BUILDING

A process undertaken by which a demand for the securities proposed to be issued

by a body corporate is elicited and built up and the price for the securities is

assessed on the basis of the bids obtained for the quantum of securities offered for

subscription by the issuer. This method provides an opportunity to the market to

discover price for securities.

# Options in Book building

75 % Book Building

100 % book Building

# Books remain open for 7 working days ( Fixed price issue 10 days) # Only Electronic Bidding

# Bids to be submitted through Syndicate members

# Issue completed and trading commenced on T + 16 basis

# Floor price disclosed one day prior to bid date

# Price band of 20 %

MERCHANT BANKERS

Meaning

A merchant banker is a specialist intermediary whose main business

is to help and advise the issuing company to raise finance from the

capital market. The term merchant banker is related with:-

a) The public offer of securities for sale.

a) Sale or purchase of securities or transfer thereof by any body

corporate through a merchant banker.

BUY-BACK OF SHARES

MEANING

Buy back of shares means return of the worth of shares to shareholders , resulting

in reduction in number of outstanding shares through distribution of accumulated

profits.

BUY BACK can be carried out in two ways:-

1. Shareholders may be presented with a tender offer whereby they have the option

to submit (or tender) a portion or all of their shares within a certain time frame and

at a premium to the current market price. This premium compensates investors for

tendering their shares rather than holding on to them.

2. Companies buy back shares on the open market over an extended period of

time.

REFRENCES

Investment management-R.p Rastogi

Reserve Bank of India. Report on Currency and

Finance , various issues.

Securities and Exchange Board of India.

1995/96 and1996/97. Annual Report. India:

SEBI.

www.capital market study.com

THANKS