Introduction to Capital Market

Introduction to Capital Market Mrunal Joshi

Introduction • Economy and Financial System • Capital Market and Financial System • Meaning of Capital Market: It is a market for long-term funds—both equity and debt—and funds raised within and outside the country. • The capital market aids economic growth by mobilising the savings of the economic sectors through financial system and directing the same towards channels of productive use. BRCM College of Business Administration Mrunal Joshi

BRCM College of Business Administration Mrunal Joshi

Indian Financial System MoF: Ministry of Finance SEBI: Security Exchange Board of India RBI: Reserve Bank of India IRDA: Insurance Regulatory and Development Authority

Regulators: MoF, SEBI, RBI, IRDA

Financial Institutions (Intermediari es)

Formal (Organised)

Financial Markets

Financial Instruments


Financial Services

Informal (Unorgan ised)

Money Lenders, Local Bankers, Traders, Landlords

Banking Institutions

Financial Institutions

Non-Banking Institutions

(Intermediaries)

Commercial Banks

Public Sector, Private Sector, Foreign Banks, Regional Rural Banks

Cooperative Banks

Finance Companies

Mutual Funds Insurance and Housing Finance Companies

Development Finance Institutions:


IDBI, SIDBI, NABARD, SFCs, ECGC, DIGC

Financial Markets

Capital Market

Equity Market Primary Market

Debt Market

Money Market

* Public Issue * Private Placement (Domestic and International)

Secondary Market

NSE, BSE, OTCEI, ISE, Regional SEs

Derivative Market (F&O) (SEs Based)

Stock and Index based Derivatives

Private Corporate Debt, PSU Bonds, Govt Sec. Mkt Primary and Secondary Market of:

Treasury Bill, Call Money Mkt, Commercial Bills, Commercial Papers, Certificates of Deposit, Term Money BRCM College of Business Administration Mrunal Joshi

Financial Instruments Types Primary Securities Equity, Preference, Debt and Others

Terms:

Secondary Securities Term Deposits, MFs, Insurance Polices


Short, Medium, Long

Depositories Factoring is a financial transaction and a type of debtor finance in which a business sells its accounts receivable Credit Rating (i.e., invoices) to a third party (called a factor) at a discount. ... Forfaiting is a factoring arrangement Factoring used in international trade finance by Forfaiting exporters who wish to sell their receivables to a forfaiter.

Custodial

Merchant banking Leasing Hire Purchasing

Guaranteeing Portfolio Management

Underwriting


Notes: IDBI : Industrial Development Bank of India IFCI : Industrial Finance Corporation of India SIDBI : Small Industries Development Bank of India IDFC : Infrastructure Development Finance Company Limited NABARD: National Bank for Agriculture and Rural Development EXIM Bank : Export-Import Bank of India SFC : State Financial Corporation SIDC : State Industrial Development Corporation ECGC : Export Credit Guarantee Corporation of India DICGS : Deposit Insurance and Credit Guarantee Corporation OTC : Over the Counter NHB : National Housing Bank BRCM College of Business Administration Mrunal Joshi


Importance of capital market • • • • • • • • •

Mobilize long-term savings to investment Provides equity capital to entrepreneurs Productive use of financial resources Provides liquidity Lower cost of transaction and information Competitive pricing in Capital allocation Quick valuation of financial instrument Insurance against investment risk – Derivatives Wider participation – network of institutions and experts • Improvement in operational efficiency BRCM College of Business Administration Mrunal Joshi

Recent Trend in Capital Market • Economic Growth

• Inflation: The inflation rate in India edged up to 5 percent in June of 2018 from 4.87 percent in May • (Source: https://tradingeconomics.com/india/inflation-cpi)


• Primary Market: In the first nine months of 2017-18, 153 companies access primary market through public and right issue to raise Rs 727.87 billion compared to Rs 497.05 billion raised through 85 issues during the same period last year, showing 46 per cent increase in resource mobilisation over the year. There were only 5 public debt issues that raised Rs 41 billion over this period (as compared to Rs 239 billion raised through 10 public debt issues during the same period in the previous financial year (SEBI Bulletin, January 2018).


• Secondary Market: As of end December 2017, the domestic market capitalisation of the NSE stood at US$ 2.35 trillion, a notch higher than that of the BSE (US$ 2.33 trillion). • S&P BSE Sensex, the benchmark index of BSE, closed at 34,056 points as on end-2017, witnessing a gain of 28 per cent from its closing of 26,626 points from a year ago. During the same period, Nifty 50, the benchmark index of NSE, closed at 10,531 points, witnessing a gain of 29 per cent from its closing of 8,186 points at the end of 2016.


• Mutual Funds: • During April–December 2017 with a net inflow of Rs 2.15 trillion. • There was net outflow of Rs 70.56 billion from income / debt oriented schemes and • a net inflow of Rs 1.33 trillion into growth / equity oriented schemes. • Balanced schemes recorded inflow of Rs 703.11 billion. • Exchange traded funds witnessed net inflow of Rs 195.89 billion. • The cumulative net assets under management by all mutual funds increased by 22 per cent to Rs 21.38 trillion at the end of December 2017 (SEBI Bulletin, January 2018). • Equity Derivative Markets: The total turnover in equity derivatives at NSE increased to Rs 1,155 trillion in April-December 2017 from Rs 667.53 trillion in the same period last year, with 1,359 million contracts traded during this period vs. 1,023 million contracts traded in the corresponding period last year. BRCM College of Business Administration Mrunal Joshi

• Foreign Institutional Investor in India: In FY17, the gross turnover of FPIs in the equity market segment on the major Indian stock exchanges (NSE and the BSE) was Rs 20.8trn. the ratio of FII equity turnover to total turnover for both the exchanges (NSE and BSE) was 20.6 percent in FY17.



References • Pathak, B. V. (2014). Indian Financial System (Fourth Ed.): Pearson Education India. • A Review Indian Securities Market. (2017) (Vol. XX). Mumbai: National Stock Exchange of India. https://www.nseindia.com/content/us/ismr_full2017.pdf
