A capital market is a market where
buyers and sellers engage themselves in the trade of different financial
securities. It provides a channel for the allocation of savings to those who
have the productive need for them. The suppliers of the capital include retail
investors, institutional investors and the users of capital include
governments, business, and individuals.
Capital markets play a vital role
in the functioning of the economy as the capital is a critical component in
generating the economic output. The Capital Market in India is regulated by
“Securities and Exchange Board of India” (SEBI). Though capital markets are
generally concentrated in financial centres around the world, most of the
trades occurring within capital markets take place through computerized
electronic trading systems. Some of these are accessible to the public and
others are more tightly regulated.
The Capital market has two
interdependent and inseparable segments:
The Primary market provides an
opportunity to the issuers of securities, both Government, and firms, to raise
resources to meet their requirements of investment. Securities, in the form of
equity or debt, can be issued in domestic/international markets at face value,
discount or premium.
The primary market issuance is
done either through public issues or private placement. Under Companies Act,
1956, an issue is referred as public if it results in allotment of securities
to 50 investors or more. However, when the issuer makes an issue of securities
to a select group of persons not exceeding 49 and which is a right do not issue
nor a public issue it is called a private placement.
Primary markets allow
companies to raise capital without or before holding an initial public offering so as to make as much direct profit as possible. After
this point the company may choose to hold an initial public offering so as to
generate more liquid capital. In such an event, the company will generally
sell its shares to a few investment banks or other firms.
The Secondary market basically
refers to a market where investment banks, other
firms, private investors and a variety of other parties resell their equity and
debt securities that are traded after being offered to the public in the
primary market or listed on the Stock Exchange. The secondary market comprises
of equity, derivatives and the debt markets. The secondary market is operated
through two mediums, namely, the Over-the-Counter (OTC) market and the
Exchange-Traded market. OTC markets are informal markets where trades are
The Capital Markets are broadly
divided into two financial instruments:
The equity securities are often
known as stocks, and debt securities are often known as bonds. Capital markets
involve the issuing of stocks and bonds for medium-term and long-term durations
which are generally in terms of one year or more.
Equities are basically the instruments of
Ownership. The Equity market is the market in
which shares are issued and
traded, either through exchanges or through over the counter markets.
It is basically a point where buyers and sellers
meet with each other for the trade of stocks. The securities that are traded in the equity market can either be public
stocks that are those listed on the stock exchange, or privately traded stocks.
Often, private stocks are traded through dealers that are through an
The Equity market which is known as the stock market is one of the most
important areas in market economy .This is because it gives firms and
institutions access to the capital and individuals or the investors a part of ownership in the firm
with a potential to realize gains which are based on the future performance of
Equity shares are the financial instruments that the
company issues to raise capital and it also represents the title to the
ownership of a company. One can become the owner of a company if the subscribe
to the company’s equity capital where in one will be allotted share or by
buying the share of the company from its existing owners. You also have to bear
the risk of business and are also entitled to the gains of ownership like share
in distributed profit. These returns that the company earns depend upon the
company’s profit and its growth rate.
Key Components of Equity Market:
The Indian stock market can be broken down
into two major components from a macro level perspective.
The Trading Exchanges are place where the
market securities, commodities derivative and other financial instruments are
traded and issued. In India there are
two broad Exchanges
Bombay Stock Exchange:
The BSE is established in
1875 and is the oldest and Asia’s First stock exchange. It is the fastest stock
exchange where the trading speed is generally 6 micro seconds. It offers a
variety of services other than the trading like Risk management, clearing, and
settlement, market data services and education. It has a global reach with wide
number of customers and also a strong national presence. It has around 5000
stocks and is the sister index of New York stock exchange in USA.
National Stock Exchange:
The NSE ha began its
operations in 1994 and is now fourth largest stock exchange according to the
World federation of exchange (WFE). NSE oversees compliance by trading and clearing members and listed
companies with the rules and regulations of the exchange. It also has similar
functions as of BSE like clearing and settlement market data services,
providing technological solutions and financial education offerings. It has
around 3000 stocks.
An Index is used
to give information about the price movements of products in the financial,
commodities or any other markets. Stock market indices are meant to capture the
overall behaviour of the equity markets. The stock market index is created by
selecting a group of stocks that are representative of the whole market or a
specified sector or segment of the market.