View
233
Download
0
Category
Preview:
Citation preview
8/8/2019 Indian Capital Market1
1/14
Indian Capital Market
Capital Market is the place where the funds are
mobilized by the financial and investment
intermediaries for long term, to make them availablefor nations economic development.
The growth rate of capital market is the index, that
can be used for measuring the health of the national
economy.
Capital Market is the market for issuing long term
funds
8/8/2019 Indian Capital Market1
2/14
Indian Capital Market The changes in economic scenario and the
economic growth have raised the interest ofIndian as well as Foreign InstitutionalInvestors in the Indian Capital Market.
The massive structural reforms on theeconomic and industry front in the form of de-liscencing, rupee convertibility, tapping offoreign funds, allowing foreign investors to
come to India. During last 10 years of so, the Indian CapitalMarket Capital has witnessed growth involume of funds raised as well as of transactions
8/8/2019 Indian Capital Market1
3/14
Indian Capital Market
The Capital Market is bifurcated in to :-
Primary Market or New Issue Market
Secondary Market or Stock Market
8/8/2019 Indian Capital Market1
4/14
Primary Market
Companies issue securities from time to time to raisefunds in order to meet their financial requirements formodernization, expansion and diversificationprogramme, these securities are issued directly to the
investors through the mechanism called primarymarket.
The primary market discharges the important functionof transfer of savings, especially of the individuals tothe companies, the Government and the public sectorundertakings.
In Primary Market, the new issue of securities arepresented in the form of Public Issue, Right Issue orPrivate Placement.
8/8/2019 Indian Capital Market1
5/14
Features of primary market
This is the market for new long term equity capital. The primarymarket is the market where the securities are sold for the first time.Therefore it is also called the new issue market (NIM).
In a primary issue, the securities are issued by the company directlyto investors.
The company receives the money and issues new securitycertificates to the investors.
Primary issues are used by companies for the purpose of setting upnew business or for expanding or modernizing the existing business.
The primary market performs the crucial function of facilitatingcapital formation in the economy.
The new issue market does not include certain other sources of newlong term external finance, such as loans from financial institutions.Borrowers in the new issue market may be raising capital forconverting private capital into public capital; this is known as "goingpublic."
The financial assets sold can only be redeemed by the originalholder.
8/8/2019 Indian Capital Market1
6/14
Initial Public Offer
An initial public offer(IPO) referred to simply as an "offering" or"flotation," is when a company issues common stock or shares tothe public for the first time. They are often issued by smaller,younger companies seeking capital to expand, but can also be doneby large privately-owned companies looking to become publicly
traded. In an IPO the issuer may obtain the assistance of an underwritingfirm, which helps it determine what type of security to issue(common or preferred), best offering price and time to bring it tomarket.
An IPO can be a risky investment. For the individual investor, it istough to predict what the stock or shares will do on its initial day of
trading and in the near future since there is often little historical datawith which to analyze the company. Also, most IPOs are of companies going through a transitory growth period, and they aretherefore subject to additional uncertainty regarding their futurevalue
8/8/2019 Indian Capital Market1
7/14
Reasons for listing
When a company lists its shares on a public exchange, it will almostinvariably look to issue additional new shares in order at the sametime. The money paid by investors for the newly-issued shares goesdirectly to the company (in contrast to a later trade of shares on theexchange, where the money passes between investors). An IPO,therefore, allows a company to tap a wide pool of stock market
investors to provide it with large volumes of capital for future growth.The company is never required to repay the capital, but instead thenew shareholders have a right to future profits distributed by thecompany and the right to a capital distribution in case of a dissolution.
The existing shareholders will see their shareholdings diluted as aproportion of the company's shares. However, they hope that the
capital investment will make their shareholdings more valuable inabsolute terms.
In addition, once a company is listed, it will be able to issue furthershares via a rights issue, thereby again providing itself with capital forexpansion without incurring any debt. This regular ability to raiselarge amounts of capital from the general market, rather than having to
seek and negotiate with individual investors, is a key incentive formany companies seeking to list.
8/8/2019 Indian Capital Market1
8/14
Right Issue
If an existing company intends to raise
additional funds, it can do so by borrowing
or by issuing new shares. One of the most
common methods for a public company to
use is to offer existing shareholders the
opportunity to subscribe further shares.
This mode of raising finance is calledRight Issue.
8/8/2019 Indian Capital Market1
9/14
Reasons for Right Issue
In times of inflation, the replacement costs of assts will be
high, unless the company can retain cash from substantial
profits, the only alternative is to raise cash from a fresh
issue of share.
For funding expansion projects, a company may make right
issue.
If a company has a proportion of interest bearing loan
capital, the company can suffer from a squeeze on profits.
The company can improve the capital structure position byobtaining extra share capital.
At a time when the share prices were relatively high,
companies fount it easy to persuade their shareholders to
subscribe cash for new issues with a view to expansion by
takeover.
8/8/2019 Indian Capital Market1
10/14
Advantages of Right Issue
To the Companies
To the Shareholders
8/8/2019 Indian Capital Market1
11/14
Private Placemet
A private placement (or non-public
offering) is a funding round of securities
which are sold without a initial public
offering, usually to a small number of
chosen private investors.
8/8/2019 Indian Capital Market1
12/14
Secondary Market Secondary Market refers to the network/system for the subsequent sale
and purchase of securities. An investor can apply and get allotted a
specified number of securities by the issuing company in the primary
market. However, once allotted, the securities can thereafter be sold and
purchased in the secondary market only.
The secondary market is represented by the stock exchanges in anycapital market
Stock exchange is a perfectly competitive market, as a large number of
seller and buyers participates in it and the information regarding the
securities is publicly available to all the investors.
8/8/2019 Indian Capital Market1
13/14
Functions of Secondary Market
The secondary market allows investors to sell to
other investors the securities they buy in the
primary market. This provides the liquidity that
allows investors to purchase securities withouthaving to hold them indefinitely or until maturity.
The securities market helps firms to price the
securities they are going to sell in the primary
market. For example, the issue price for a right
offering may be fixed somewhat below the
market price of the securities.
8/8/2019 Indian Capital Market1
14/14
Functions of Secondary Market
The secondary market widens the ownership ofa firms securities when investors make directpurchases in the secondary market as opposed
to depositing funds with the mutual funds or banks etc.
The price of a firms security in the secondarymarket has a direct impact on the wealth of theshareholders. Although, the market price isinfluences by many variables, the firms ability togenerate shareholders returns depends a lot onthe market price of the share which varies inresponse to firms profitablity.
Recommended