• Financial Markets- organisations and institutions which lend funds to business enterprises and public authorities.
-composed of two constituents :
• the money market-deals with provision of short-term credit.
• the capital market-deals with medium-term and long-term credit.
Indian Capital Market
Capital Market- divided into two constituents:
• Financial institutions-IFCI(1948), IDBI(1964),
SIDBI, IDFC, SFC’s, LIC, UTI etc. and
• The securities market- divided into two:
1) Gilt-Edged Market
2) Corporate Securities Market-divided into two
Gilt-Edged Market is a market in govt. securities or the securities guaranteed by the govt.
Features of govt. securities market are:
• Risk free and guaranteed returns, RBI’s role, high liquidity.
• Consists of two parts: a) the new issues marketmanaged by RBI and b) secondary marketdeals in old issues of govt. loans, operates through few large stockbrokers.
• Investors are largely institutions includes commercial banks, LIC,GIC and provident funds.
Corporate Securities Market
Corporate Securities Market is a market where the securities are issued by corporate firms(i.e., shares, bonds, debentures) are bought and sold.
It consists of the new issues market (the primary market) and the stock exchange (the secondary market).
• The new issues market- deals with the issue of new securities. Public limited companies often raise the funds through this market, it is not so easy to sell securities in this market.
- capital issues consists of two parts: shares and debentures.
1) shares: two types- equity shares and preference shares
• Equity Shares- does not guarantee fixed rate of dividend, depends on yearly profits. As such equity shareholders face maximum risk in the company.
• Preference Shares- fixed rate of dividend, repayment of capital if company closes.
2) Debenture: merely loans that carry fixed rate of interest and must be paid annually. Debenture holders do not have any share in the ownership of a company. It is either convertible or non-convertible.
• Convertible Debentures- can be converted into equity capital at fixed date or after a specified period.
• Non-convertible Debentures- do not carry any rights like convertible debentures. •
The stock exchange- highly organized market for purchase and sale of second-hand quoted or listed securities/existing securities can be regularly purchased and sold. SEBI governs the stock exchanges-listing companies, issuing securities, trading stocks.
National Stock Exchange (NSE)- set up 1992, trading
1994, high growth. Trading of equity instruments, debentures, preference shares. Adopted fully automated screen based trading.
-Transparency, anonymity, competition in the brokerage industry, operational efficiency, gains outside Mumbai.
-index of companies in NSE is Nifty.