CAPITAL MARKET
Capital Market means market
for long term funds as distinct from Money market which deals in short term
funds.
The size of the capital
Market implies the Volume of Trade in Securities (Shares/ Bonds) in a country
leading Stock exchanges.
The demand for long term
funds comes from industry, trade, agriculture and government. The supply of
funds comes from individual savers, corporate savings, banks, insurance
companies, specialized financial institution and government.
Classification of Capital Market /
Structure of Capital Market
Capital
Market in India is Classified in two ways:
A)The
first ways consists of:
1.
Primary Market: Primary market deals with those
securities that are issued to public for the first time. Therefore, it is also
called as New Issues market. It is the new issue market of shares, bond,
debentures, right issues, etc. It is generally done through underwriting
mechanism, under which the underwriters like commercial or investment banks
take the risk of distributing securities.
Three important instruments
of Primary Market are:
a)
Initial
Public Offer (IPO): Under this, a company issues shares to the
public for the first time. The money paid by the investors for new shares goes
directly to the company and underwriter helps the IPO issuer in taking
decision, related to the issues like Price or time of issue.
b)
Right
issue and Follow on Public Offer / Further Public Offer (FPO):
After getting listed on the stock exchange fresh equity can later be raised
through Right issue or FPO.
Under
right issue new shares are offered to the existing share holder in proportion
to their share holding. Further Public Offer is open to all investor, whether
new or existing.
c)
Private
Placement: It also perform the sale of new shares. But under this,
new shares are sold to big investors like Banks and other Financial
Institutions. It can be done through two ways:
i.
Qualified
Institutional Placement: Under this, shares are bought by
Qualified Institutional Buyers like Commercial Banks, Mutual Funds, FII etc.
who can invest large amount in Capital
Market.
ii.
Preference
Share: The holders of preference share get preference in
getting fixed rate of dividends and getting back their claims in case of
Bankruptcy as compared to ordinary Share holder.
2.
Secondary Market: Secondary market deals with
securities that are already issued by companies. It facilitates trading in
securities and operates through Stock exchanges.
Major Stock Exchanges of
India:
a)
Bombay
Stock Exchange (BSE): It
was set up in 1875. Sensex is an index of the shares owned by 30 largest
companies listed at BSE. It is the oldest Stock Exchange in India and Asia.
b)
National
Stock Exchange(NSE): It was set up in 1992 and started its
operation in 1994. NIFTY is an index of shares owned by 50 largest companies in
terms of Market cap listed at NSE.
c)
Over
the Counter Exchange of India: It was set up in 1989 and
started its operation in 1992. It deals basically with the securities of small
Companies.
d)
MCX-SX:
It
commenced operations in the Currency Derivatives (CD) segment on October 7,
2008 under the regulatory framework of Securities & Exchange Board of
(SEBI) and Reserve Bank of India (RBI).
B)The
second way of classification of Capital market is as follows:
1.
Gilt Edged Market: It deals in government
securities. It is risk free or least risk securities. RBI plays an important
role in Gilt edged market through its open market operations.
2.
Industrial Securities Market: The market for industrial
securities is known as industrial securities market. It is an ideal market for
corporate securities such as bonds and equities. Industrial
securities are of three types viz. ordinary shares, preference shares and
debentures or bonds.
3.
Development Financial Institutions:
Development finance institutions (DFIs) have mainly catered to the medium to
long-term financing requirements. Industrial Finance Corporation of India
(IFCI) was the first DFI which was established to extend long-term finance to
industry. This was followed by the establishment of several DFIs, both in
public and private sector.
DFIs can be classified as:
a)
term lending institutions such as
Industrial Investment Bank of India (IIBI) Ltd, Export-Import Bank of India
(EXIM) and Tourism Finance Corporation of India (TFCI) Ltd which provide
long-term finance to various sectors; and
b)
refinance institutions such as National
Bank for Agriculture and Rural Development (NABARD), Small Industries
Development Bank of India (SIDBI) and National Housing Bank (NHB) which provide
finance to banking as well as non-banking financial intermediaries.
4.
Financial Intermediaries: Financial Intermediaries
include merchant banks, insurance companies, Mutual Fund, pension funds,
Leasing companies etc. they help in mobilizing savings and supplying funds to
capital market.
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