psm unit i introduction

8/10/2019 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

psm unit i introduction

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