Dr.Sunitha.SAssistant Professor

School of Management Studies,National Institute of Technology (NIT) Calicut

MONETARY ECONOMICS:Capital Market

Capital Market

Capital market

A market where medium term and long term funds are borrowed and lent.

Divided into: Primary Market (New Issues Market) Secondary market (Stock Exchanges)

Also Industries Securities Market Gilt Edged Securities Market

Players & Instruments in the capital markets

Investors Brokers/traders Securities and Exchange

Bard of India (SEBI) National Stock Exchange

(NSE) Bombay stock Exchange

(BSE) Credit rating agencies

(CRISIL,CARE etc)

Preference Shares Equity Shares Debentures Bonds

Players Instruments

What is meant by stock?

A “stock” is a share in the ownership of a company.

A stock represents a claim on the company's assets and earnings. As you acquire more stocks, your ownership stake in the company becomes greater.

So what does ownership of a company give you? Holding a company's stock means that you are one of the

many owners (shareholders) of a company and, as such, you have a claim to everything the company owns.

This means that technically you own a tiny little piece of all the furniture, every trademark, and every contract of the company. As an owner, you are entitled to your share of the company's earnings as well.

These earnings will be given to you. These earnings are called “dividends” and are given to the shareholders from time to time. 

A stock is represented by a "stock certificate". This is a piece of paper that is proof of your ownership.

However, now-a-days you could also have a “demat” account. This means that there will be no “stock certificates”. Everything will be done though the computer electronically. Selling and buying stocks can be done just by a few clicks.    

What makes stock prices go "up" and "down"?Stock prices change every day because of market forces. By this we mean that stock prices change because of “supply and demand”. If more people want to buy a stock (demand) than sell it (supply), then the price moves up!

Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall. (Basics of economics!)

CAPITAL MARKET

Primary market also known as New Issues Market (NIM) is a market for raising fresh capital in the form of shares & debentures

Secondary Market, also known as stock market deals in securities that have already been issued by companies.

Modes of raising capital

Public Issue (IPO): is where the securities are issued to the members of the general public. Most popular method of raising long term funds.

Rights Issue: is a method of issuing additional shares to the existing shareholders.

Private Placement: Where the shares of a company are sold to a group of small investors.

Stock Market

Bombay Stock Exchange (BSE)

National Stock Exchange (NSE)

Gilt Edged Market

Gilt edged market is also known as Govt securities market, is the market for Govt & semi Govt securities. Features Guaranteed returns on investments No speculation in securities Predominated by LIC,GIC,Provident funds &

commercial banks

Stock market indices are the barometer of the stock market.

BSE SENSEX,NSE-NIFTY etc are some of the market indices.

Stock Market Indices

SENSEX –BSE Index

What is SENSEX? The Sensex is an "index". An index is

basically an indicator. It gives you a general idea about whether most of the stocks have gone up or most of the stocks have gone down.

The Sensex is an indicator of all the major companies of the Bombay Stock Exchange

( BSE).

Companies represented by Sensex as of 2012 Reliance Industries

Infosys Tech ICICI Bank L&T HDFC ITC HDFC Bank SBI ONGC Bharti Airtel BHEL Tata Consultancy Hindustan unilever Sterlite Industries Coal India

Tata Steel Tata Power Maruti Suzuki NTPC Wipro M&M Jaiprakash Associates Reliance Infrastructure Grasim Industries Tata Motors DLF Hero Motorcorp Hindalco Reliance communications Sun Pharma ACC

Companies represented by Sensex as of 11 Nov 2013 Reliance Industries Infosys Tech ICICI Bank L&T HDFC ITC HDFC Bank SBI ONGC Bharti Airtel BHEL Tata Consultancy Hindustan unilever M&M Gail India

Tata Steel Tata Power Maruti Suzuki NTPC Wipro Cipla Sesagoa Dr.Reddys Jindal Steel Tata Motors DLF Hero Motorcorp Hindalco Sun Pharma Bajaj Auto Coal India

If the Sensex goes up, it means that the prices of the stocks of most of the major companies on the BSE have gone up. If the Sensex goes down, this tells you that the stock price of most of the major stocks on the BSE have gone down.

NIFTY

The Nifty is an indicator of all the major companies of the NSE. 

Just like the Sensex represents the top stocks of the BSE, the Nifty represents the top stocks of the National Stock Exchange (NSE) Delhi.

Equity Shares

Equity shares are known as ordinary shares held by the owners of a corporate entity.

Equity shareholders face greater risks They are given larger share of profits through

higher dividends than those given to preference share holders.

Preference Shares

Shares that carry preferential rights in comparison with ordinary shares are called Preference shares. The preferential rights are regarding payment of dividend and the distribution of the assets of the company in the event of its winding up, in preference to equity shares.

Debentures

A form of long term debt capital A document that either creates a debt or

acknowledges it is known as a debenture. A document that shows on the face of it that

a company has borrowed a sum of money from the holder thereof upon certain terms and conditions is called a debenture.

More secured & carries fixed interest rate

Shares Vs Debentures

Shareholder has a proprietary interest in the company

Entitled to dividends depending on varying profits

Enjoys voting rights

Debenture holder is only a creditor of the company

Entitled to fixed interest

Do not enjoy voting rights

Gets priority over shareholders when assets are distributed upon winding up

Market capitalization

Market capitalization represents the public consensus on the value of a company's equity.

Its market capitalization is the share price multiplied by the number of shares in issue, providing a total value for the company's shares.

Categorization of companies by capitalization Large-cap: $10 billion–$200 billion Mid-cap: $2 billion–$10 billion Small-cap: $300 million–$2 billion Micro-cap: $50 million-$300 million Nano-cap: Below $50 million

Large cap :ONGC,Coal India,SBI Midcap: Ashok Leyland,colgate Palmolive Smallcap:BNP Paribas

Speculation

Speculation consists of buying and selling commodities or securities or other property, in the hope of profit from anticipated changes of value.

Involves risk Type of speculators: Bulls & Bears

Bulls & Bears

Bull is a speculator on the stock exchange who expects a rise in the price of a certain security is known as ‘bull’.

Hence a bull tends to buy the security in order to sell it in future at the expected higher price.

He is a potential seller of security to reap profit.

A bear is a speculator who expects a fall in price of the security of a company.

Market becomes bearish when there is a strong expectation of fall in prices and is said to be bullish when it is dominated by an expectation of a rise in price.

HOW TO MAKE MONEY INSTOCK MARKET?Patience, profound knowledge.

Best guess.

Diversification .

Portfolio management.

Thank You