capital market

By Dr. Ajit Kumar
 Definition-
borrow/lend lond term capital fund
 Capital Market vs Bank Finance
 Advantages and Disadvantages
 Constituents of Indian capital Market
 1.Government Security market-B.R.Act
 2. Industrial Security market
Segments of Security Market
 1.
Primary Market-helps in growth of economy
 2. Secondary Market-does not help
 Primary market is also known as NIM
Why Secondary market
 For
the efficient growth of primary market, a
sound secondary market is an essential
requirement. It provides liquidity to the investors
as also a high profit expectation. NIM can’t exist
without SM.
Stock Exchanges
Subject to Govt supervision & control
 Total no. of stock exchanges –23
 Two national stock exchanges 1.BSE
 2.NSE
 BSE- estd. In 1857, in fact oldest in Asia
 NSE- set up in 1993, has 70% share of total trading
 Out of 21 Regional stock exchanges 15 stock exchanges
reported NIL transaction.
 NSE is harbinger of reforms in capital market
Who Regulates ?
 Stock
market is regulated by SEBI under
‘Securities Contracts Regulation Act’ 1956
 concurrently with GOI(MOF+MOC), RBI also
has a regulatory role with regard to FII & FDI.
 SEBI was set up in 1988 but SEBI Act was passed
in 1992.
 Prior
to SEBI it was regulated by Controller of
Capital Issues.
Capital Market Instruments
 1.Preference
 2. Equity Share- min.25% public offer req for new issues for listing
 3. Non-voting Equity share-Abid Hussain committee
 4. Convertible Cumulative Preference Share
 5. Company Fixed Deposit
 6. Debenture & Bonds- issued under common seal of the company
 7. Warrants-10 to30% above market price- sweeteners
Methods of Marketing Securities I
 1.
Pure Prospectus Method-exclusively from general public, adv
 2. Offer for Sale – sale to intermediaries at agreed price,adv
 3. Private Placement – not more than 50, for listed,lockin5yr
 4. Bought Out Deals- same as ppfor unlisted,lock in 18m,adv
 5. Rights Issue- existing shareholders,only by listed companies
 6. Bonus Issue- accumulated reserves and surplus of
profits converted into paid-up capital.Free of charge.
 7. Book Building Method- merchant banker-qualified
institutional buyers,price bids,free to determine private placement &
Methods of Marketing securities II
8. Stock Option Method (ESOP)- only for listed companies,
with prior approval of shareholders through a special resolution.
9.Initial Public Offer (IPO)-1 time,unlisted only if net worth>3c,profit
 Under this method securities are issued to successful
applicants on the basis of the order placed by them
through their broker.
 Red herring clause- A preliminary prospectus (also known
as red herring) often with words with letters which say it
is preliminary and the price is not yet set.
 Green shoe option- additional subscription can be offered
by the issuer (15%)
Intermediaries of the Market
Merchant Bankers/ Lead Managers- regulated by SEBI
 Registrars and share transfer agents
 Underwriters- CARE-a bank can’t uw > 15% of the issue,
can’t uw >400 times of it’s net worth, underwriting is
eligible for computation of capital market exposure.
 Bankers to Issue- certificate of registration from SEBI required
 Rating Agencies (CRISIL, ICRA, Fitch)
 Brokers & Sub-brokers- 9400 Broking outfits out of
which 29 are foreign brokers
Depositories-Depository Act –1996, It’s a company under
the Companies Act 1956.We have multi depository
system.Depository is a custodian where investors deposit
their assets and it executes certain orders of the investorsNational Securities Depository Ltd.(NSDL), Centralised
Depository Services Ltd. (CSDL)
 Depository Participants- It is base level branch of a bank
or a non-bank maintaining deposit on behalf of investorstotal number 295.
Why limit on Capital Market Exposure?- Risk
 Why emphsis on CD ratio?
 Bank Finance- appraisal based/ merit based
 Capital Market – theoretically appraisal based but
practically confidence based
 Bank in a position to monitor by way of post credit
supervision, no such mechanism in case of capital market
exposure.-guided by market perception and manipulation.
 Glass
Steagall Act was enacted in USA after 1929
stock market crash. The bank was not allowed to
take direct exposure in stock market. Banks were
required to have a firewall between bank’s
investment portfolio and others.
 Abolished during Reagan regime.
 Extant Exposure norms- India
It’s time to say