ayushigupta-1 70910094828.pptx

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3. In the financial sense, the capital market is the market for the instruments representing long-term funds requirement of the corporation. It consists of a sprawling complex of institutions and mechanism whereby intermediate-term funds and long-term funds are pooled and made available to business, government, and individuals. 3

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5. Characteristics of Capital Market 5

6. ◘ Debt and equities instruments traded in the capital markets are intermediate or longer-term in maturity. ◘ The scope of the market is very wide. ◘ The supply of the new funds comes from the same sectors although it is funneled within the markets through financial institutions. 6

7. ◘ The demand for the capital market instruments comes from five categories like individuals and households, business and financial corporation, central government, local government, and foreign government. ◘ Transactions in open markets influence the prices and yields of longer-term instruments immediately 7

8. Function of Capital Market Mobilization of Savings : Capital market is an important source for mobilizing idle savings from the economy. It mobilizes funds from people for further  investments  in the productive channels of an economy. In that sense it activate the ideal monetary resources and puts them in proper investments. Capital Formation : Capital market helps in capital formation. Capital formation is net addition to the existing stock of capital in the economy. Through mobilization of ideal resources it generates savings; the mobilized savings are made available to various segments such as agriculture,  industry , etc. This helps in increasing capital formation. 8

9. Speed up Economic Growth and Development : Capital market enhances  production  and  productivity  in the national economy. As it makes funds available for long period of time, the financial requirements of business houses are met by the capital market. It helps in research and development. This helps in, increasing production and productivity in economy by generation of employment and development of infrastructure. Proper Regulation of Funds : Capital markets not only helps in fund mobilization, but it also helps in proper allocation of these resources. It can have regulation over the resources so that it can direct funds in a qualitative manner. 9

10. Service Provision : As an important financial set up capital market provides various types of services. It includes long term and medium term loans to industry, underwriting services, consultancy services, export finance, etc. These services help the manufacturing sector in a large spectrum. Continuous Availability of Funds : Capital market is place where the investment avenue is continuously available for long term investment. This is a liquid market as it makes fund available on continues basis. Both buyers and seller can easily buy and sell securities as they are continuously available. Basically capital market transactions are related to the  stock exchanges . Thus marketability in the capital market becomes easy. Provision of Investment Avenue : Capital market raises resources for longer periods of time. Thus it provides an investment avenue for people who wish to invest resources for a long period of time. It provides suitable interest rate returns also to investors. Instruments such as bonds, equities, units of  mutual funds ,  insurance  policies, etc. definitely provides diverse investment avenue for the public. 10

11. PLAYERS OF CAPITAL MARKET Stock Exchange- It is a place where shares of pubic listed companies are traded. The primary market is where companies float shares to the general public in an initial public offering (IPO) to raise capital. Merchant Banker- It is a place where shares of pubic listed companies are traded. The primary market is where companies float shares to the general public in an initial public offering (IPO) to raise capital. The SEBI issued guideline for the merchant bankers in April 1990. Underwriters- An underwriter is a company or other entity that administers the public issuance and distribution of  securities  from a corporation or other issuing body. An underwriter works closely with the issuing body to determine the  offering price  of the securities,  buys  them from the  issuer , and sells them to investors via the underwriter's  distribution network . Underwriters generally receive  underwriting  fees from their issuing clients, but they also can earn profits when selling the underwritten shares to investors. 11

12. FII- A foreign institutional investor (FII) is an investor or investment fund registered in a country outside of the one in which it is investing. Institutional investors most notably include hedge funds, insurance companies, pension funds and mutual funds. Credit Rating Agencies- A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratings, which rate a debtor's ability to pay back debt by making timely interest payments and the likelihood of default. Venture Capital Fund - Venture capital is financing that investors provide to  startup  companies and small businesses that are believed to have  long-term growth  potential. For startups without access to  capital markets , venture capital is an essential source of money. Risk is typically high for investors, but the  downside  for the startup is that these  venture capitalists  usually get a say in company decisions. 12

13. Brokers - A broker is an individual or firm that charges a fee or commission for executing buy and sell orders submitted by an investor. Portfolio Managers - A portfolio manager is a person or group of people responsible for investing a mutual, exchange-traded or closed-end fund's assets, implementing its investment strategy and managing day-to-day portfolio trading. A portfolio manager is one of the most important factors to consider when looking at fund investing. 13

14. Types of Capital Market Primary Market Secondary Market 14

15. Primary Market It is that market in which shares, debentures and other securities are sold for the first time for collecting long term capital. This market is concerned with new issues. Therefore, the primary market is also called “New Issue Market”. The money collected from this market is generally used by the companies to modernize the plant, machinery and buildings, for extending business, and for setting up new business unit 15

16. Secondary Market The secondary market is that market in which the buying and selling of the previously issued securities is done. The transaction of the secondary market are generally done through the medium of stock market. The chief purpose of the secondary market is to create liquidity in securities. 16

17. Importance/Role of Capital Market Mobilization of savings- in this market, various types of securities helps to mobilize savings from various sectors of population. The twin features of reasonable return and liquidity in stock exchange are definite incentives to the people to invest in securities. Ready to continuous market - the stock exchange provides a central convenient place where buyers and sellers can easily purchase and sell securities. 17

18. Easy liquidity - with the help of secondary market investors can sell off their holdings and convert them into liquidity cash. Commercial banks also allow investors to withdraw their deposits, as and when they are in need f funds. Foreign capital -it makes possible to generate foreign capital. Indian firms are able to generate capital funds from overseas market by way of bonds and other securities. Government has liberalized “Foreign Direct Investment” (FDI) in the country. This is not brings in foreign capital but also foreign technology which is important for economic development of the country. 18

19. Important Factors Affecting the Choice of Capital Structure Under the capital structure, decision the proportion of long-term sources of capital is determined. Most favorable proportion determines the optimum capital structure. That happens to be the need of the company because EPS happens to be the maximum on it. Some of the chief factors affecting the choice of the capital structure are the following: 19

20. (1) Cash Flow Position: While making a choice of the capital structure the future cash flow position should be kept in mind. Debt capital should be used only if the cash flow position is really good because a lot of cash is needed in order to make payment of interest and refund of capital.  (2) Interest Coverage Ratio-ICR: With the help of this ratio an effort is made to find out how many times the EBIT is available to the payment of interest. The capacity of the company to use debt capital will be in direct proportion to this ratio. It is possible that in spite of better ICR the cash flow position of the company may be weak. Therefore, this ratio is not a proper or appropriate measure of the capacity of the company to pay interest. It is equally important to take into consideration the cash flow position. 20

21. (3) Debt Service Coverage Ratio-DSCR: This ratio removes the weakness of ICR. This shows the cash flow position of the company. This ratio tells us about the cash payments to be made (e.g., preference dividend, interest and debt capital repayment) and the amount of cash available. Better ratio means the better capacity of the company for debt payment. Consequently, more debt can be utilized in the capital structure. (4) Return on Investment-ROI: The greater return on investment of a company increases its capacity to utilize more debt capital. 21

22. (5) Cost of Debt: The capacity of a company to take debt depends on the cost of debt. In case the rate of interest on the debt capital is less, more debt capital can be utilized and vice versa. (6) Tax Rate: The rate of tax affects the cost of debt. If the rate of tax is high, the cost of debt decreases. The reason is the deduction of interest on the debt capital from the profits considering it a part of expenses and a saving in taxes. 22

23. (7) Cost of Equity Capital: Cost of equity capital (it means the expectations of the equity shareholders from the company) is affected by the use of debt capital. If the debt capital is utilized more, it will increase the cost of the equity capital. The simple reason for this is that the greater use of debt capital increases the risk of the equity shareholders. Therefore, the use of the debt capital can be made only to a limited level. If even after this level the debt capital is used further, the cost of equity capital starts increasing rapidly. It adversely affects the market value of the shares. This is not a good situation. Efforts should be made to avoid it. (8 ) Floatation Costs: Floatation costs are those expenses which are incurred while issuing securities (e.g., equity shares, preference shares, debentures, etc.). These include commission of underwriters, brokerage, stationery expenses, etc. Generally, the cost of issuing debt capital is less than the share capital. This attracts the company towards debt capital. 23

24. Structure of the Capital Market 24

25. REFORMS AND DEVELOPMENT SINCE 1991 25

26. 1> Securities and exchange board of India- The Securities and Exchange Board of India (SEBI) was established in 1988. It got a legal status in 1992. SEBI was primarily set up to regulate the activities of the merchant banks, to control the operations of mutual funds, to work as a promoter of the stock exchange activities and to act as a regulatory authority of new issue activities of companies. 2> Establishment of Creditors Rating Agencies - Three creditors rating agencies viz. The Credit Rating Information Services of India Limited the Investment Information and Credit Rating Agency of India Limited and Credit Analysis and Research Limited were set up in order to assess the financial health of different financial institutions and agencies related to the stock market activities 26

27. 3> Increasing of Merchant Banking Activit ies- Many Indian and foreign commercial banks have set up their merchant banking divisions in the last few years. These divisions provide financial services such as underwriting facilities, issue organizing consultancy services, etc. 4> Candid Performance of Indian Economy   - In the last few years, Indian economy is growing at a good speed. It has attracted a huge inflow of Foreign Institutional Investments (FII).  5> Rising Electronic Transactions- Due to technological development in the last few years. The physical transaction with more paper work is reduced. 27

28. 6> Growing Mutual Fund Industry- The growing of mutual funds in India has certainly helped the capital market to grow. Public sector banks, foreign banks, financial institutions and joint mutual funds between the Indian and foreign firms have launched many new funds. 7> Growing Stock Exchanges - The numbers of various stock in India are increasing. Initially the  BSE  was the main exchange, but now after the setting up of the  NSE  and the  OTCEI , stock exchanges have spread across the country. 8> Investor's Protection- Under the purview of the SEBI the Central Government of India has set up the Investors Education and Protection Fund (IEPF) in 2001. 28

29. 9> Growth of Derivative Transactions- Since June 2000, the NSE has introduced the derivatives trading in the equities. In November 2001 it also introduced the future and options transactions. 10> Insurance Sector Reforms- Indian insurance sector has also witnessed massive reforms in last few years. The Insurance Regulatory and Development Authority (IRDA) was set up in 2000 . 11> Commodity Trading- Along with the trading of ordinary securities, the trading in commodities is also recently encouraged. The Multi Commodity Exchange (MCX) is set up. The volume of such transactions is growing at a splendid rate. 29

30. Bibliography www.slideshare.net www.investopedia.com www.yourarticlelibrary.com www.economictimes.indiatimes.com 30

31. CREDIT GOES TO- UTKARSH BISHT – (BBA/4560/16) PRATEEK PANDEY – (BBA/4561/16) SAKET MANGALAM – (BBA/4563/16) SHUBHAM KUMAR – (BBA/4566/16) AYUSHI GUPTA – (BBA/4567/16) 31

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