CAPITAL MARKET IN INDIA

Prepared

By
Dr. Rajanikant Verma

INTRODUCTION
A capital market is a market for securities (debt or equity), where
business enterprises (companies) and governments can raise
long-term funds. It is defined as a market in which money is
provided for periods longer than a year, as the raising of shortterm funds takes place on other markets (e.g., the money market).
The capital market includes the stock market (equity securities)
and the bond market (debt). Financial regulators, such as the UK's
Financial Services Authority (FSA) or the U.S. Securities and
Exchange Commission (SEC), oversee the capital markets in their
designated jurisdictions to ensure that investors are protected
against fraud, among other duties.

OVERVIEW
During last 20 years or so, the capital market in India has
witnessed growth in volume of funds raised as well as of
transactions.
The changes in economic scenario and the economic growth
have raised the interest of Indians as well as foreign institutional
investors in the Indian capital market.
The buoyancy in the capital market has appeared as a result of
increasing industrialization ,growing awareness ,globalization of
the capital market ,etc. several financial institutions, financial
instruments, and financial services have emerged as a result of
economic liberalization policy of the government of India. The
capital market has two independent segments: the primary
market and the secondary market.

STOCK MARKET

PRIMARY MARKET
Primary market refers to the set up which helps the industry
to raise funds by issuing different type of securities .Since
1991/92, the primary market has grown fast as a result of
the removal of investment restrictions in the overall economy
and a repeal of the restrictions imposed by the Capital
Issues Control Act. In1991/92, Rs62.15 billion was raised in
the primary market. This figure rose to Rs276.21 billion in
1994/95. Since 1995/1996, however, smaller amounts
have been raised due to the overall downtrend in the market
and tighter entry barriers introduced by SEBI for investor
protection (Table 1).

The efficient operation of the primary market is possible by the

financial intermediaries and the financial institutions that arrange
long-term financial transaction for their clients.

Secondary market
Secondary market refers to the system for the subsequent sale
and purchase of securities.
India has seen a tremendous change in the secondary market
for equity. Its equity market will most likely be comparable with
the worlds most advanced secondary markets within a year or
two. The key ingredients that underlie market quality in Indias
equity market are:

Exchanges based on open electronic limit order book;

Nationwide integrated market with a large number of informed
traders and fluency of short or long positions; and
No counterparty risk.

MARKET PARTICIPANTS

SECURITIES AND EXCHANGE BOARD OF INDIA

The Securities and Exchange Board of India (frequently
abbreviated SEBI) is the regulator for the securities market in
India. It was formed officially by the Government of India in
1992 with SEBI Act 1992 being passed by the Indian
Parliament. SEBI is headquartered in the popular business
district of Bandra - Kurla complex in Mumbai, and has Northern,
Eastern, Southern and Western regional offices in New Delhi,
Kolkata, Chennai and Ahmadabad.
Controller of Capital Issues was the regulatory authority before
SEBI came into existence; it derived authority from the Capital
Issues (Control) Act, 1947.

Functions
Its main functions are providing for:a) regulating the business in stock exchanges and any other securities
markets.
b) registering and regulating the working of stock brokers, sub-brokers,
share transfer agents, bankers to an issue, trustees of trust deeds,
registrars to an issue, merchant bankers, underwriters, portfolio
managers, investment advisers and such other intermediaries who
may be associated with securities markets in any manner.
c) registering and regulating the working of the depositories,
participants, custodians of securities, foreign institutional investors,
credit rating agencies and such other intermediaries as the Board
may, by notification, specify in this behalf.
d) registering and regulating the working of venture capital funds and
collective investment schemes including mutual funds;

e) prohibiting fraudulent and unfair trade practices relating to securities

markets;
f) prohibiting insider trading in securities;
g) regulating substantial acquisition of shares and takeover of companies;
h) calling for information from, undertaking inspection, conducting inquiries
and audits of the stock exchanges, mutual funds and other persons
associated with the securities market and intermediaries and selfregulatory organizations in the securities market;

PARTICIPANTS IN INDIAN CAPITAL MARKET

EMERGING TRENDS IN INDIAN CAPITAL MARKET

The process of structural changes started in 1988 with establishment of SEBI as an
administrative body . Some of the characterized features and components that
have emerged in Indian capital market are:a)
b)
c)
d)
e)
f)
g)
h)
i)
j)
k)

investors protection, grievance and education

Depositories and dematerialization
Derivatives
Book-building
Buy-back of shares
Securities lending scheme
Rolling settlement
Green shoe option
Merchant bankers
Portfolio manager
Mutual funds

BOOK BUILDING
A process undertaken by which a demand for the securities proposed to be issued
by a body corporate is elicited and built up and the price for the securities is
assessed on the basis of the bids obtained for the quantum of securities offered for
subscription by the issuer. This method provides an opportunity to the market to
discover price for securities.
# Options in Book building
75 % Book Building
100 % book Building
# Books remain open for 7 working days ( Fixed price issue 10 days)
# Only Electronic Bidding
# Bids to be submitted through Syndicate members
# Issue completed and trading commenced on T + 16 basis
# Floor price disclosed one day prior to bid date
# Price band of 20 %

MERCHANT BANKERS
Meaning
A merchant banker is a specialist intermediary whose main business

is to help and advise the issuing company to raise finance from the
capital market. The term merchant banker is related with:a) The public offer of securities for sale.
a) Sale or purchase of securities or transfer thereof by any body
corporate through a merchant banker.

BUY-BACK OF SHARES
MEANING
Buy back of shares means return of the worth of shares to shareholders , resulting
in reduction in number of outstanding shares through distribution of accumulated
profits.
BUY BACK can be carried out in two ways:1. Shareholders may be presented with a tender offer whereby they have the option
to submit (or tender) a portion or all of their shares within a certain time frame and
at a premium to the current market price. This premium compensates investors for
tendering
their
shares
rather
than
holding
on
to
them.
2. Companies buy back shares on the open market over an extended period of
time.

REFRENCES
Investment management-R.p Rastogi
Reserve Bank of India. Report on Currency and
Finance , various issues.
Securities and Exchange Board of India.
1995/96 and1996/97. Annual Report. India:
SEBI.
www.capital market study.com

THANKS