Professional Documents
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CAPITAL MARKETS
They deal with securities with maturity period > 1
year.
CAPITAL MARKETS
PRIMARY
MARKETS
SECONDARY
MARKETS
Household savings
Global investments
Sale of govt securities
Market risk
Public issue
Under this method, this issuing company directly
offers to the general public/ institutions a fixed
number of shares at a stated price/ bidding
through a document called prospectus.
This is the most common method followed by
joint stock companies to raise capital through the
issue of securities.
Public issue can be further classified into Initial
public offer (IPO) and Further public offer (FPO).
Right issues
It is a method of raising funds from the existing shareholders
by an listed company. Shares, so offered to the existing
shareholders are called rights shares.
Cost of capital
Financial leverage
Market liquidity
Market Regulations
SECONDARY MARKET
STOCK EXCHANGES
The securities regulation act of 1956 defined stock
exchange as an association , organization , or a individual
which is established for the purpose of assisting ,
regulating , and controlling business in buying ,selling and
dealing in securities.
They are auction markets for securities.
Transaction at stock exchange occur by placing an order.
Types of Orders: (QP)
Limit Orders (Order placed at price specified by client)
Market Order (Order placed at current market price)
Stop Loss Order (Order given to limit loss due to
unfavorable price movements)
Commercial Banks
Insurance Company
Mutual Fund
Bhubaneshwar Stock
Exchange
OTCEI (QP)
Started with the objective of providing a market for the
smaller companies that could not afford the listing fees
& did not fulfill the minimum capital requirement for
listing.
It was promoted by the financial institutions like UTI,
ICICI, IDBI, IFCI, LIC etc. in September 1992 specially
to cater to small and medium sized companies with
equity capital of more than Rs.30 lakh and less than
Rs.25 crore.
It has no particular marketplace or stock exchange
floor.
In OTC, buyers and sellers operate on negotiated
prices acceptable to both.
Inactive issues, less liquid shares, issues with limited
public holding comprise the OTC market.
Usefulness
Help to recognize the broad trends in the market
Can be used as benchmark for evaluating the
investors portfolio
Functions as a status report on the general
economy
Investor can use the indices to allocate funds
rationally among stocks
To do Technical analysis
Market Capitalisation
Market capitalization is the total worth of all outstanding (issued)
shares of a company. It represents the total worth of a company.
Market capitalization= No of shares outstanding x market price of
share
Example:
Company XYZ Ltd issues 10000 shares, out of which 2000 shares held by
government, 5000 shares by directors of the company and remaining 3000
shares are available in the open market for trading. Market price of share is
100 Rs.
Here;
Total Shares =
10000
Shares Held by Government =
2000
Shares Held by Directors =
5000
Shares available in the Open Market =
3000
Market price of share =
Rs 100
Here total market
=Rs 10,00,000 and
Free float market
=Rs 300,000
capitalization
of the
company is 10,000
Rs100
capitalization
of the
company is 3000
Rs100
Example:
Suppose BSE index (SENSEX) consist of only
two stocks such as X and Y
Company X has 10000 outstanding shares
out of which only 5000 are available for
trading in open market. Market price of
share is Rs.100.
Company Y has 5000 outstanding shares
out of which 2000 shares are held by
promoters and remaining 3000 are free float
shares
(open market
shares). Market
price of share is Rs.50
Here;
Sum of free float market cap of company X and company
Y is 500000+100000 = 600000
Assume market cap during 1978-79 is 500000
Now Apply formula;
600000*100/500000 = 120
Stock
X
Y
Issued
Stocks
10000
5000
Calculation of
capitalization
Stock
X
Y
Market price
100
50
Free
Open Market
Stocks
5000
2000
Market Cap.
1000000
250000
Float
Market price
100
50
market
Market Cap.
500000
100000
The
two
BSE INDICES
BSE 100
BSE 200
BSE IPO
What is dematerialization?
Conversion of shares from
physical to electronic form.
Regulators
Exchange NSE/BSE
Clearing Corporation NSCCL
Custodian
Depository NSDL/CDSL
Broker
Registrar
Merchant Banker
Bankers
Debenture Trustees
Risk Management
A sound risk management system is integral to an
efficient settlement system.
NSCCL has put in place a comprehensive risk
management system, which is constantly monitored
and upgraded to preempt market failures.
It monitors the track record and performance of
members and their net worth; undertakes on-line
monitoring of members positions and exposure in the
market, collects margins from members and
automatically disables members if the limits are
breached.
Process (QP)
(1) Trade details from Exchange to NSCCL
(2) NSCCL notifies to Clearing Members / Custodians who
confirm back
(3) Download of obligation and pay-in advice of
funds/securities
(4) Instructions to clearing banks to make funds available by
pay-in time.
(5) Instructions to depositories to make securities available
by pay-in-time.
(6) Pay-in of securities
(7) Pay-in of funds
(8) Pay-out of securities
(9) Pay-out of funds.
(10)
Depository informs custodians/CMs through DPs.
(11)
Clearing Banks inform custodians/CMs.
B1
Middle size companies, good financial performance,
less trading interest
B2
Small companies, poor financial performance, low
trading volumes
Z
Non compliance with listing norms, Non payment of
listing fees, Non submission of quarterly results