Download - PSM Unit I Introduction
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Primary andSecondary Markets
By:
Dr.N.SARAVANABHAVAN
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Agenda
Financial Market
Money Market
Capital Market Primary Market
Features of Primary market
Secondary Market
Features of Secondary Market
Conclusion
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What Is Financial Market ?
A financial marketis a market in which peopleand entities can trade financial securities,
commodities and other fungible items of value atlow transaction costs and at prices that reflectsupply and demand . Securities include stocks,bonds and commodities include precious metals
or agricultural goods .
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Types Of Financial
Market
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Players Of Money
Market Reserve Bank of India
Government
Discount and Finance House of India Commercial Banks
Mutual Funds
Primary Dealer Financial Institutions
Corporate Firms
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CAPITALMARKET
The market where investment instrumentslike bonds, equities and mortgages aretraded is known as the capital market.
The primal role of this market is to makeinvestment from investors who have surplusfunds to the ones who are running a deficit.
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The capital market offers both long term andovernight funds.
The different types of financial instrumentsthat are traded in the capital markets are:
> equity instruments
> credit market instruments,> insurance instruments,
> foreign exchange instruments,
> hybrid instruments and> derivative instruments.
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Importance of Capital Markets Help firms and governments raise cash by selling
securities
Allow investors with excess funds to invest and earn areturn
Channel funds from savers to borrowers Allocate resources optimally (i.e., provide funds to those
who can make the best use of them)
Help allocate cash to where it is most productive Help lower the cost of exchange
Secondary markets, where investors trade existingsecurities, assures investors that they can quickly sell
their securities if the need arises
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Types of capital marketThere are two types of capital market:
Primary market,
Secondary market
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Primary Market
It is that market in which shares,debentures and other securities are sold for
the first time for collecting long-term
capital.
This market is concerned with new issues.
Therefore, the primary market is also calledNEW ISSUE MARKET.
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In this market, the flow of funds is from saversto borrowers (industries), hence, it helps directly
in the capital formation of the country. The money collected from this market is
generally used by the companies to modernize
the plant, machinery and buildings, forextending business, and for setting up newbusiness unit.
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Features of Primary Market
It Is Related With New Issues It Has No Particular Place
It Has Various Methods Of Float Capital: Followingare the methods of raising capital in the primary
market:i) Public Issue
ii) Offer For Sale
iii) Private Placementiv) Right Issue
v) Electronic-Initial Public Offer
It comes before Secondary Market
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Initial public offering IPO) The first sale of acompanys stock to the general public.
Investment bankersFinancial specialists who handle
the sales of most corporate and municipal securities.
UnderwritingProcess of purchasing an issue from a
firm or government and then reselling the issue to
investors.
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Structure of Indian Capital
Market with Diagram
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Functions of Capital
Market
Mobilizationof Savings
CapitalFormation
Provision ofInvestment
Avenue
Speed upEconomic
Growth andDevelopment
ProperRegulation of
Funds
ContinuousAvailability
of Funds
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Constituents/Components
of Capital Markets
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PLAYERS OF CAPITAL
MARKET
Stock Exchange
Merchant Banker
Underwriters
FII
Credit Rating Agencies
Venture Capital Fund
Brokers
Portfolio Managers
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Role of SEBI in Regulating
Capital Market Increasing Market Transparency.
Improving the standards of CorporateGovernance.
Improving Market Efficiency. Reduction of Transaction Cost.
Enhancing the Market Safety.
Educate investors
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Factors to be considered by Investors
Promoters Credibility
Project Details
Product Financial data
Risk factors
Auditors report
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Secondary Market
The secondary market is thatmarket in which the buying and
selling of the previously issued
securities is done.
The transactions of the secondary
market are generally done through
the medium of stock exchange. The chief purpose of the secondary
market is to create liquidity in
securities.
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If an individual has bought some
security and he now wants to sell it, hecan do so through the medium of stock
exchange to sell or purchase through
the medium of stock exchange requiresthe services of the broker presently,
their are 24 stock exchange in India.
.
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Features of Secondary Market
It Creates Liquidity
It Comes After Primary Market
It Has A Particular Place It Encourage New Investments
Aids in financing the industry
Ensures safe & fair Dealing( MEDIABROADCASTING)
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Functions of Secondary Markets
Provides regular information about the value of
security.
Helps to observe prices of bonds and their interest
rates.
Offers to investors liquidity for their assets.
Secondary markets bring together many interested
parties.
It keeps the cost of transactions low.
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Famous Secondary Markets worldwide
New York Stock Exchange
NASDAQ
The London Stock Exchange The Tokyo Stock Exchange
Shanghai Stock Exchange
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Indian Financial Markets History
History of Indian Stock Market
From Scattered and small beginning in the 19th Century, Indias stock market has risen to great
heights
By 1990, we had 19 stock exchanges (national + regional) in the country
As a move towards integrated national level exchanges BSE & NSE became prominent by late 1990s
BSE has the roots at Native shares and stock brokers association established in 1875, later
recognized by GoI in 1956
The launch of SENSEX in 1986 was later followed by BSE National Index (Base: 1983-84 = 100) Jan
1989
BSE National Index was renamed as BSE-100 Index from Oct- 1996 (taking into consideration only the
prices of stocks listed at BSE)
The BSE has deployed an Online Trading system (BOLT) on March 14, 1995
National Stock Exchange (NSE) got its recognition as a stock exchange in July 1993 under Securities
Contracts (Regulation) Act, 1956 NSE's leading index is Nifty 50 or popularly Nifty and is composed of 50 diversified benchmark Indian
company stocks
Although late than BSE, National Stocks Exchange is currently the leading stock exchange in India in
terms of total volume traded
Further liberalization India expected to see another one or two equity exchanges in the neat future
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ROLE OF CAPITAL MARKET IN INDIAS
INDUSTRIAL GROWTH
Financing Five Year Plans
Mobilization of savings and acceleration of capital
formation.
Promotion of industrial growth.
Raising long-term capital.
Ready and continuous market.
Proper channelization of funds. Provision of a variety of services.
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Establishment of development banks and industrial
financing institutions.
Legislative measures.
Growth of underwriting business.
Growing public confidence.
Increasing awareness of investment opportunities.
Setting up of SEBI.
Mutual funds.
Credit rating agencies.
FACTORS CONTRIBUTING TO THE GROWTH OF
CAPITAL MARKET IN INDIA
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PROBLEMS OF THE INDIAN CAPITAL MARKET :
THE PRE-REFORM PHASE
EQUITY MARKET
as of 1992, BSE was a monopoly, so it had high cost
of intermediation.
open outcry , brokers used to charge the investorsa much higher price.
No price-time priority.
Manipulative practices prevailed. Retail investors were dependent on sub-brokers.
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Money Market Vs. Capital
Market
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Thank you