A PROJECT ON CAPITAL MARKET
CAPITAL MARKET
The capital market is the market for securities, where Compaies a! "o#ermets ca raise
lo"$term fu!s% It is a market i which moe& is let for perio!s lo"er tha a &ear% A atio's
capital market iclu!es such fiacial istitutios as (aks, isurace compaies, a! stock
e)cha"es that chael lo"$term i#estmet fu!s to commercial a! i!ustrial (orrowers%
*like the moe& market, o which le!i" is or!iaril& short term, the capital market t&picall&
fiaces fi)e! i#estmets like those i (uil!i"s a! machier&%
Nature a! Costituets+
The capital market cosists of um(er of i!i#i!uals a! istitutios ,iclu!i" the "o#ermet-
that caali.e the suppl& a! !ema! for lo"$term capital a! claims o capital% The stock
e)cha"e, commercial (aks, co$operati#e (aks, sa#i" (aks, !e#elopmet (aks, isurace
compaies, i#estmet trust or compaies, etc%, are importat costituets of the capital markets%
The capital market, like the moe& market, has three importat Compoets, amel& the
suppliers of loaa(le fu!s, the (orrowers a! the Iterme!iaries who !eal with the lea!ers o
the oe ha! a! the /orrowers o the other% The !ema! for capital comes mostl& from
a"riculture, i!ustr&, tra!e The "o#ermet% The pre!omiat form of i!ustrial or"ai.atio
!e#elope! Capital Market (ecomes a ecessar& ifrastructure for fast i!ustriali.atio% Capital
market ot cocere! solel& with the issue of ew claims o capital, /ut also with !eali" i
e)isti" claims%
0e(t or /o! market +
The (o! market ,also kow as the !e(t, cre!it, or fi)e! icome market- is a fiacial market
where participats (u& a! sell !e(t securities, usuall& i the form of (o!s% As of 123, the si.e
of the worl!wi!e (o! market ,total !e(t outsta!i"- is a estimate! 456%6 trillio 789, of which
the si.e of the outsta!i" *%:% (o! market !e(t was 4;8%6 trillio accor!i" to /I: ,or
alterati#el& 4;owe#er, a small um(er of (o!s, primaril&
corporate, are liste! o e)cha"es% Refereces to the ?(o! market? usuall& refer to the
"o#ermet (o! market, (ecause of its si.e, li@ui!it&, lack of cre!it risk a!, therefore,
sesiti#it& to iterest rates% /ecause of the i#erse relatioship (etwee (o! #aluatio a!
iterest rates, the (o! market is ofte use! to i!icate cha"es i iterest rates or the shape of
the &iel! cur#e%
Cotets +
A 8 Market structure
A 6 T&pes of (o! markets
A ; /o! market participats
A < /o! market si.e
A 1 /o! market #olatilit&
A B /o! market ifluece
A C /o! i#estmets
A 5 /o! i!ices
Market structure +
/o! markets i most coutries remai !ecetrali.e! a! lack commo e)cha"es like stock,
future a! commo!it& markets% This has occurre!, i part, (ecause o two (o! issues are
e)actl& alike, a! the #ariet& of (o! securities outsta!i" "reatl& e)cee!s that of stocks%
>owe#er, the New Dork :tock E)cha"e ,ND:E- is the lar"est cetrali.e! (o! market,
represeti" mostl& corporate (o!s% The ND:E mi"rate! from the Automate! /o! :&stem
,A/:- to the ND:E /o!s tra!i" s&stem i April 12C a! e)pects the um(er of tra!e! issues
to icrease from 8222 to B222% /esi!es other causes, the !ecetrali.e! market structure of the
corporate a! muicipal (o! markets, as !isti"uishe! from the stock market structure, results
i hi"her trasactio costs a! less li@ui!it&% A stu!& performe! (& Profs >arris a! Piwowar i
12owe#er, (u&ers a! sellers
are electroicall& matche!% Oe or more NA:0AO market makers will alwa&s pro#i!e a (i! a!
ask price at which the& will alwa&s purchase or sell 'their' stock% The Paris /ourse, ow part of
Euroe)t, is a or!er$!ri#e, electroic stock e)cha"e% It was automate! i the late 8352s% Prior
to the 8352s, it cosiste! of a ope outcr& e)cha"e% :tock(rokers met o the tra!i" floor or
the Palais /ro"iart% I 835B, the CAT: tra!i" s&stem was itro!uce!, a! the or!er matchi"
process was full& automate!% =rom time to time, acti#e tra!i" ,especiall& i lar"e (locks of
securities- ha#e mo#e! awa& from the 'acti#e' e)cha"es% :ecurities firms, le! (& */: AF,
Fol!ma :achs Froup Ic% a! Cre!it :uisse Froup, alrea!& steer 86 percet of *%:% securit&
tra!es awa& from the e)cha"es to their iteral s&stems% That share pro(a(l& will icrease to 85
percet (& 6282 as more i#estmet (aks (&pass the ND:E a! NA:0AO a! pair (u&ers a!
sellers of securities themsel#es, accor!i" to !ata compile! (& /osto$(ase! Aite Froup LLC, a
(rokera"e$i!ustr& cosultat% Now that computers ha#e elimiate! the ee! for tra!i" floors
like the /i" /oar!'s, the (alace of power i e@uit& markets is shifti"% /& (ri"i" more or!ers
i$house, where cliets ca mo#e (i" (locks of stock ao&mousl&, (rokers pa& the e)cha"es
less i fees a! capture a (i""er share of the 488 (illio a &ear that istitutioal i#estors pa& i
tra!i" commissios as well as the surplus of the cetur& ha! take place%
Market participats+
A few !eca!es a"o, worl!wi!e, (u&ers a! sellers were i!i#i!ual i#estors, such as wealth&
(usiessme, with lo" famil& histories ,a! emotioal ties- to particular corporatios% O#er
time, markets ha#e (ecome more ?istitutioali.e!?J (u&ers a! sellers are lar"el& istitutios
,e%"%, pesio fu!s, isurace compaies, mutual fu!s, i!e) fu!s, e)cha"e$tra!e! fu!s,
he!"e fu!s, i#estor "roups, (aks a! #arious other fiacial istitutios-% The rise of the
istitutioal i#estor has (rou"ht with it some impro#emets i market operatios% Thus, the
"o#ermet was resposi(le for ?fi)e!? ,a! e)or(itat- fees (ei" marke!l& re!uce! for the
Rsmall' i#estor, (ut ol& after the lar"e istitutios ha! maa"e! to (reak the (rokers' soli!
froto fees% ,The& the wet to 'e"otiate!' fees, (ut ol& for lar"e istitutios% >owe#er,
corporate "o#erace ,at least i the Eest- has (ee #er& much a!#ersel& affecte! (& the rise of
,lar"el& 'a(setee'- istitutioal 'owers'%
>istor& +
Esta(lishe! i 85C1, the /om(a& :tock E)cha"e is Asia's first stock e)cha"e% I 86th cetur&
=race the courratiers !e cha"e were cocere! with maa"i" a! re"ulati" the !e(ts of
a"ricultural commuities o (ehalf of the (aks% /ecause these me also tra!e! with !e(ts, the&
coul! (e calle! the first (rokers% A commo mis(elief is that i late 8;th cetur& /ru"es
commo!it& tra!ers "athere! isi!e the house of a ma calle! Qa !er /eur.e, a! i 8;23 the&
(ecame the ?/ru"se/eurse?, istitutioali.i" what ha! (ee, util the, a iformal meeti",
(ut actuall&, the famil& Qa !er /eur.e ha! a (uil!i" i Atwerp where those "atheri"s
occurre!J the Qa !er /eur.e ha! Atwerp, as most of the merchats of that perio!, as their
primar& place for tra!i"% The i!ea @uickl& sprea! arou! =la!ers a! ei"h(ori" couties a!
?/eur.e? soo opee! i Fhet a! Amster!am% I the mi!!le of the 8;th cetur&, Qeetia
(akers (e"a to tra!e i "o#ermet securities% I 8;18 the Qeetia "o#ermet outlawe!
sprea!i" rumors ite!e! to lower the price of "o#ermet fu!s% /akers i Pisa, Qeroa,
Feoa a! =lorece also (e"a tra!i" i "o#ermet securities !uri" the 8owe#er,
these compaies accrue o itrisic #alue to the lo"$term sta(ilit& of the America ecoom&,
(ut rather ol& short$term profits to America (usiess me a! the ChieseJ althou"h, whe the
forei" compa& has a presece i the ew market, this ca (eefit the market's citi.es%
Co#ersel&, there are #er& few lar"e forei" corporatios liste! o the Toroto :tock E)cha"e
T:T, Caa!a's lar"est stock e)cha"e% This !iscretio has isulate! Caa!a to some !e"ree to
worl!wi!e fiacial co!itios% I or!er for the stock markets to trul& facilitate ecoomic "rowth
#ia lower costs a! (etter emplo&met, "reat attetio must (e "i#e to the forei" participats
(ei" allowe! i%
Relatio of the stock market to the mo!er fiacial s&stem +
The fiacial s&stems i most wester coutries wester has u!er"oe a remarka(le
trasformatio% Oe feature of this !e#elopmet is !isiterme!iatio% A portio of the fu!s
i#ol#e! i sa#i" a! fiaci", flows !irectl& to the fiacial markets istea! of (ei" route!
#ia the tra!itioal (ak le!i" a! !eposit operatios% The "eeral pu(lic's hei"htee! iterest
i i#esti" i the stock market, either !irectl& or throu"h mutual fu!s, has (ee a importat
compoet of this process% :tatistics show that i recet !eca!es shares ha#e ma!e up a
icreasi"l& lar"e proportio of househol!s' fiacial assets i ma& coutries% I the 83C2s, i
:we!e, !eposit accouts a! other #er& li@ui! assets with little risk ma!e up almost B2 percet
of househol!s' fiacial wealth, compare! to less tha 62 percet i the 122s% The maHor part of
this a!Hustmet i fiacial portfolios has "oe !irectl& to shares (ut a "oo! !eal ow takes the
form of #arious ki!s of istitutioal i#estmet for "roups of i!i#i!uals, e%"%, pesio fu!s,
mutual fu!s, he!"e fu!s, isurace i#estmet of premiums, etc% The tre! towar!s forms of
sa#i" with a hi"her risk has (ee accetuate! (& ew rules for most fu!s a! isurace,
permitti" a hi"her proportio of shares to (o!s% :imilar te!ecies are to (e fou! i other
i!ustriali.e! coutries% I all !e#elope! ecoomic s&stems, such as the Europea *io, the
*ite! :tates, Japa a! other !e#elope! atios, the tre! has (ee the same+ sa#i" has mo#e!
awa& from tra!itioal ,"o#ermet isure!- (ak !eposits to more risk& securities of oe sort or
aother%
The stock market, i!i#i!ual i#estors, a! fiacial risk +
Riskier lo"$term sa#i" re@uires that a i!i#i!ual possess the a(ilit& to maa"e the associate!
icrease! risks% :tock prices fluctuate wi!el&, i marke! cotrast to the sta(ilit& of ,"o#ermet
isure!- (ak !eposits or (o!s% This is somethi" that coul! affect ot ol& the i!i#i!ual
i#estor or househol!, (ut also the ecoom& o a lar"e scale% The followi" !eals with some of
the risks of the fiacial sector i "eeral a! the stock market i particular% This is certail&
more importat ow that so ma& ewcomers ha#e etere! the stock market, or ha#e ac@uire!
other 'risk&' i#estmets ,such as 'i#estmet' propert&, i%e%, real estate a! collecta(les-% Eith
each passi" &ear, the oise le#el i the stock market rises% Tele#isio commetators, fiacial
writers, aal&sts, a! market strate"ists are all o#ertaki" each other to "et i#estorUs messa"e
(oar!s, are e)cha"i" @uestioa(le a! ofte mislea!i" tips% Det, !espite all this a#aila(le
iformatio, i#estors fi! it icreasi"l& !ifficult to profit% :tock prices sk&rocket with little
reaso, the plummet Hust as @uickl&, a! people who ha#e ture! to i#esti" for their chil!re's
e!ucatio a! their ow retiremet (ecome fri"htee!%
metimes there appears to (e o rh&me
or reaso to the market, ol& foll&% This is a @uote from the preface to a pu(lishe! (io"raph&
a(out the lo"$term #alue$oriete! stock i#estor Earre /uffett%739 /uffett (e"a his career
with 4822, a! 4822,222 from se#e (uilt himself a multi$(illio$!ollar fortue% The @uote
illustrates some of what has (ee happei" i the stock market !uri" the e! of the 62th
cetur& a! the (e"ii" of the 68st cetur&% Primar& Market, also calle! the ew issue market,
is the market for issui" ew securities% Ma& compaies, especiall& small a! me!ium scale,
eter the primar& market to raise moe& from the pu(lic to e)pa! their (usiesses% The& sell
their securities to the pu(lic throu"h a iitial pu(lic offeri"% The securities ca (e !irectl&
(ou"ht from the sharehol!ers, which is ot the case for the seco!ar& market% The primar&
market is a market for ew capitals that will (e tra!e! o#er a lo"er perio!% I the primar&
market, securities are issue! o a e)cha"e (asis% The u!erwriters, that is, the i#estmet
(aks, pla& a importat role i this market+ the& set the iitial price ra"e for a particular share
a! the super#ise the selli" of that share% I#estors ca o(tai ews of upcomi" shares ol&
o the primar& market% The issui" firm collects moe&, which is the use! to fiace its
operatios or e)pa! (usiess, (& selli" its shares% /efore selli" a securit& o the primar&
market, the firm must fulfill all the re@uiremets re"ar!i" the e)cha"e% After tra!i" i the
primar& market the securit& will the eter the seco!ar& market, where umerous tra!es happe
e#er& !a&% The primar& market accelerates the process of capital formatio i a coutr&'s
ecoom&% The primar& market cate"oricall& e)clu!es se#eral other ew lo"$term fiace
sources, such as loas from fiacial istitutios% Ma& compaies ha#e etere! the primar&
market to ear profit (& co#erti" its capital, which is (asicall& a pri#ate capital, ito a pu(lic
oe, releasi" securities to the pu(lic% This pheomea is kow as ?pu(lic issue? or ?"oi"
pu(lic%? There are three metho!s thou"h which securities ca (e issue! o the primar& market+
ri"hts issue, Iitial Pu(lic Offer ,IPO-, a! preferetial issue% A compa&'s ew offeri" is place!
o the primar& market throu"h a iitial pu(lic offer%
=uctioi" of Primar& Market +
A Primar& Mort"a"e Market
A Primar& Tar"et Market
A Trasactio Costs i Primar& Market
A PL i Primar& Market
A Re#i#al of I!ia Primar& Market
A Primar& :ecurities Market
A Pro(lems of I!ia Primar& Market
A I#estmet i Primar& Market
A Primar& Moe& market
A Iteratioal Primar& Market%
Associatio +
A IPO Primar& Market
A Primar& Capital Market+
:eco!ar& Market is the market where, ulike the primar& market, a i#estor ca (u& a securit&
!irectl& from aother i#estor i lieu of the issuer% It is also referre! as ?after market?% The
securities iitiall& are issue! i the primar& market, a! the the& eter ito the seco!ar&
market% All the securities are first create! i the primar& market a! the, the& eter ito the
seco!ar& market% I the New Dork :tock E)cha"e, all the stocks (elo" to the seco!ar&
market% I other wor!s, seco!ar& market is a place where a& t&pe of use! "oo!s is a#aila(le% I
the seco!ar& market shares are maeu#ere! from oe i#estor to other, that is, oe i#estor
(u&s a asset from aother i#estor istea! of a issui" corporatio%, the seco!ar& market
shoul! (e li@ui!%
E)ample of :eco!ar& market+
I the New Dork :tock E)cha"e, i the *ite! :tates of America, all the securities (elo" to the
seco!ar& market
Importace of :eco!ar& Market+
:eco!ar& Market has a importat role to pla& (ehi! the !e#elopmets of a efficiet capital
market% :eco!ar& market coects i#estors' fa#oritism for li@ui!it& with the capital users' wish
of usi" their capital for a lo"er perio!% =or e)ample, i a tra!itioal partership, a parter ca
ot access the other parter's i#estmet (ut ol& his or her i#estmet i that partership, e#e
o a emer"ec& (asis% The if he or she ma& (reaks the owership of e@uit& ito parts a! sell
his or her respecti#e proportio to aother i#estor% This ki! of tra!i" is facilitate! ol& (& the
seco!ar& market
ROLE O= CAPITAL MARKET+
The primar& role of the capital market is to raise lo"$term fu!s for "o#ermets, (aks, a!
corporatios while pro#i!i" a platform for the tra!i" of securities% This fu!raisi" is
re"ulate! (& the performace of the stock a! (o! markets withi the capital market% The
mem(er or"ai.atios of the capital market ma& issue stocks a! (o!s i or!er to raise fu!s%
I#estors ca the i#est i the capital market (& purchasi" those stocks a! (o!s% The capital
market, howe#er, is ot without risk% It is importat for i#estors to u!ersta! market tre!s
(efore full& i#esti" i the capital market% To that e!, there are #arious market i!ices
a#aila(le to i#estors that reflect the preset performace of the market%
Re"ulatio of the Capital Market+
E#er& capital market i the worl! is moitore! (& fiacial re"ulators a! their respecti#e
"o#erace or"ai.atio% The purpose of such re"ulatio is to protect i#estors from frau! a!
!eceptio% =iacial re"ulator& (o!ies are also char"e! with miimi.i" fiacial losses, issui"
liceses to fiacial ser#ice pro#i!ers, a! eforci" applica(le laws%
The Capital MarketUs Ifluece o Iteratioal Tra!e+
Capital market i#estmet is o lo"er cofie! to the (ou!aries of a si"le atio% To!a&Us
corporatios a! i!i#i!uals are a(le, u!er some re"ulatio, to i#est i the capital market of
a& coutr& i the worl!% I#estmet i forei" capital markets has cause! su(statial
ehacemet to the (usiess of iteratioal tra!e%
The Primar& a! :eco!ar& Markets+
The capital market is also !epe!et o two su($markets V the primar& market a! the seco!ar&
market% The primar& market !eals with ewl& issue! securities a! is resposi(le for "eerati"
ew lo"$term capital% The seco!ar& market ha!les the tra!i" of pre#iousl&$issue! securities,
a! must remai hi"hl& li@ui! i ature (ecause most of the securities are sol! (& i#estors% A
capital market with hi"h li@ui!it& a! hi"h trasparec& is pre!icate! upo a seco!ar& market
with the same @ualities%
ROLE OF CAPITAL MARKET IN INDIA:
I!iaUs "rowth stor& has importat implicatios for the capital market, which has "row sharpl&
with respect to se#eral parameters M amouts raise! um(er of stock e)cha"es a! other
iterme!iaries, liste! stocks, market capitali.atio, tra!i" #olumes a! turo#er, market
istrumets, i#estor populatio, issuer a! iterme!iar& profiles% The capital market cosists
primaril& of the !e(t a! e@uit& markets% >istoricall&, it cotri(ute! si"ificatl& to mo(ili.i"
fu!s to meet pu(lic a! pri#ate compaiesU fiaci" re@uiremets% The itro!uctio of
e)cha"e$tra!e! !eri#ati#e istrumets such as optios a! futures has ea(le! i#estors to
(etter he!"e their positios a! re!uce risks% I!iaUs !e(t a! e@uit& markets rose from C1 per
cet i 8331 to 8;2 per cet of F0P i 121% /ut the "rowth relati#e to the *:, Mala&sia a!
uth Korea remais low a! lar"el& skewe!, i!icati" immese latet potetial% I!iaUs !e(t
markets comprise "o#ermet (o!s a! the corporate (o! market ,comprisi" P:*s,
corporates, fiacial istitutios a! (aks-% I!ia compares well with other emer"i" ecoomies
i terms of sophisticate! market !esi" of e@uit& spot a! !eri#ati#es market, wi!esprea! retail
participatio a! resiliet li@ui!it&% :E/IUs measures such as su(missio of @uarterl& compliace
reports, a! compa& #aluatio o the lies of the :ar(aes$O)le& Act ha#e ehace! corporate
"o#erace% /ut eforcemet cotiues to (e a pro(lem (ecause of limite! traie! staff a!
compaies ot (ei" su(Hecte! to su(statial fies or le"al sactios% Fi#e the (oomi"
ecoom&, lar"e skille! la(our force, relia(le (usiess commuit&, cotiue! reforms a! "reater
"lo(al ite"ratio #i!icate! (& the i#estmet$"ra!e rati"s of Moo!&Us a! =itch, the et
cumulati#e portfolio flows from 12;$2B ,(o!s a! e@uities- amoute! to 4;1 (illio% The
um(er of forei" istitutioal i#estors re"istere! with :E/I rose from oe i 8336$3; to165
i 122$28, to a(out 8,222 i 12B$2C% I!iaUs stock market rose fi#e$fol! sice mi!$12; a!
outperforme! worl! i!ices with returs far outstrippi" other emer"i" markets, such as
Me)ico ,16 per cet-, /ra.il ,owe#er, this #iew has cha"e! rapi!l& as #ast amouts of iteratioal
i#estmet ha#e poure! ito our markets o#er the last !eca!e% The I!ia market is o lo"er
#iewe! as a static ui#erse (ut as a costatl& e#ol#i" market pro#i!i" attracti#e opportuities
to the "lo(al i#esti" commuit&% Now !uri" the preset fiacial crisis, we saw how capital
market stoo! still as the s&m(ol of (etter risk maa"emet practices a!opte! (& the I!ias%
Thou"h we o(ser#e! a hu"e fall i the sese) a! other stock market i!icators (ut that was all
!ue to low cofi!ece amo" the i#estors% /ecause (alace sheet of most of the I!ia
compaies liste! i the sese) were reflecti" profit e#e the people kept o with!rawi"
moe&% Ehile there was a paic i the capital market !ue to with!rawal (& the =IIs, we saw
I!ia istitutioal i#estors like isurace a! mutual fu!s comi" for the rescue u!er :E/I
"ui!elies so that the cofi!ece of the i#estors !oesUt "o low% :E/I also came up with #arious
orms iclu!i" more li(eral policies re"ar!i" participator& otes, restricti" the e)it from
close e!e! mutual fu!s etc% to (oost the i#estmet% Ehile talki" a(out currec& crisis, the
rupee kept o !epreciati" a"aist the !ollar mail& !ue to the with!rawals (& =IIs% , the
capital market trie! to attract =IIs oce a"ai% :E/I came up with ma& re#olutioar& reforms to
attract the forei" i#estors so that the !epreciatio of rupee coul! (e put to hault%
=ACTOR: A==ECTINF CAPITAL MARKET IN IN0IA+
The capital market is affecte! (& a ra"e of factors %me of the factors which ifluece capital
market are as follows+$
A-Performace of !omestic compaies+$
The performace of the compaies or rather corporate eari"s is oe of the factors which has
!irect impact or effect o capital market i a coutr&% Eeak corporate eari"s i!icate that the
!ema! for "oo!s a! ser#ices i the ecoom& is less !ue to slow "rowth i per capita icome of
people % /ecause of slow "rowth i !ema! there is slow "rowth i emplo&met which meas
slow "rowth i !ema! i the ear future% Thus weak corporate eari"s i!icate a#era"e or ot
so "oo! prospects for the ecoom& as a whole i the ear term% I such a sceario the i#estors
, (oth !omestic as well as forei" - woul! (e war& to i#est i the capital market a! thus there
is (ear market like situatio% The opposite case of it woul! (e ro(ust corporate eari"s a! itUs
positi#e impact o the capital market% The corporate eari"s for the April V Jue @uarter for the
curret fiscal has (ee "oo!% The compaies like TC:, Ifos&s, Maruti :u.uki, /harti Airtel,
ACC, ITC, Eipro, >0=C, /iai cemet, I0EA, Marico Caara /ak, Piramal >ealth, I!ia
cemets , *ltra Tech, LGT, Coca$Cola, Des /ak, 0r% Re!!&Us La(oratories, Orietal /ak of
Commerce, Ra(a)&, =ortis, :hree Cemet ,etc ha#e re"istere! "rowth i et profit compare! to
the correspo!i" @uarter a &ear a"o% Thus we see compaies from Ifrastructure sector,
=iacial :er#ices, Pharmaceutical sector, IT :ector, Automo(ile sector, etc% !oi" well % This
across the sector "rowth i!icates that the I!ia ecoom& is o the path of reco#er& which has
(ee positi#el& reflecte! i the stock market, rise i sese)G ift&- i the last two weeks% ,Jul&
8;$Jul& 6ar&aa G *ttar
Pra!esh% Thus !eficiet or !ela&e! mosoo i this part of the coutr& woul! !irectl& affect the
a"ricultural output i the coutr&% Apart from mosoo other atural calamities like =loo!s,
tsuami, !rou"ht, earth@uake, etc% also ha#e a impact o the capital market of a coutr&% The
I!ia Met 0epartmet ,IM0- o 6i"her icome also meas hi"her e)pe!iture a! hi"her
sa#i"s% This au"urs well for the ecoom& as hi"her e)pe!iture meas hi"her !ema! a!
hi"her sa#i"s meas hi"her i#estmet% Thus whe a ecoom& is "rowi" at a "oo! pace
capital market of the coutr& attracts more moe& from i#estors, (oth from withi a! outsi!e
the coutr& a! #ice $#ersa% we ca sa& that "rowth prospects of a ecoom& !o ha#e a
impact o capital markets%
F- I#estor :etimet a! risk appetite +$
Aother factor which iflueces capital market is i#estor setimet a! their risk appetite% E#e
if the i#estors ha#e the moe& to i#est (ut if the& are ot cofi!et a(out the returs from their
i#estmet , the& ma& sta& awa& from i#estmet for some time%At the same time if the i#estors
ha#e low risk appetite , which the& were ha#i" i "lo(al a! I!ia capital market some four to
fi#e moths (ack !ue to "lo(al fiacial melt!ow a! recessioar& situatio i *%:% G some
parts of Europe , the& ma& sta& awa& from i#estmet a! wait for the ri"ht time to come%
IN0IAN :TOCK MARKET AN OQERQIEE
E#olutio+
I!ia :tock Markets are oe of the ol!est i Asia% Its histor& !ates (ack to earl& 12 &ears a"o%
The earliest recor!s of securit& !eali"s i I!ia are mea"re a! o(scure% The East I!ia
Compa& was the !omiat istitutio i those !a&s a! (usiess i its loa securities use! to (e
trasacte! towar!s the close of the ei"hteeth cetur&% /& 85;2's (usiess o corporate stocks
a! shares i /ak a! Cotto presses took place i /om(a&% Thou"h the tra!i" list was
(roa!er i 85;3, there were ol& half a !o.e (rokers reco"i.e! (& (aks a! merchats !uri"
85&!era(a! a! I!ore, the well$esta(lishe! e)cha"es, were
reco"i.e! u!er the Act%me of the mem(ers of the other Associatios were re@uire! to (e
a!mitte! (& the reco"i.e! stock e)cha"es o a cocessioal (asis, (ut acti" o the priciple
of uitar& cotrol, all these pseu!o stock e)cha"es were refuse! reco"itio (& the Fo#ermet
of I!ia a! the& thereupo cease! to fuctio% Thus, !uri" earl& si)ties there were ei"ht
reco"i.e! stock e)cha"es i I!ia ,metioe! a(o#e-% The um(er #irtuall& remaie!
ucha"e!, for earl& two !eca!es% 0uri" ei"hties, howe#er, ma& stock e)cha"es were
esta(lishe!+ Cochi :tock E)cha"e ,8352-, *ttar Pra!esh :tock E)cha"e Associatio Limite!
,at Kapur, 8356-, a! Pue :tock E)cha"e Limite! ,8356-, Pal"har :tock E)cha"e
Associatio Limite! ,835;-, Fauhati :tock E)cha"e Limite! ,835 is
uwarrate!J whe pu(licl& a#aila(le iformatio is usta(le, the market ca (e Hust as usta(le%
>istorical (ack"rou!+
The efficiet$market h&pothesis was first e)presse! (& Louis /achelier, a =rech mathematicia,
i his 8322 !issertatio, ?The Theor& of
eculatio?% >is work was lar"el& i"ore! util the
8312sJ howe#er (e"ii" i the ;2s scattere!, i!epe!et work corro(orate! his thesis% A
small um(er of stu!ies i!icate! that *: stock prices a! relate! fiacial series followe! a
ra!om walk mo!el%719 Research (& Alfre! Cowles i the U;2s a! U allows
that whe face! with ew iformatio, some i#estors ma& o#erreact a! some ma& u!erreact%
All that is re@uire! (& the EM> is that i#estors' reactios (e ra!om a! follow a ormal
!istri(utio patter so that the et effect o market prices caot (e relia(l& e)ploite! to make a
a(ormal profit, especiall& whe cosi!eri" trasactio costs ,iclu!i" commissios a!
sprea!s-% Thus, a& oe perso ca (e wro" a(out the marketMi!ee!, e#er&oe ca (eM(ut
the market as a whole is alwa&s ri"ht% There are three commo forms i which the efficiet$
market h&pothesis is commol& state!Mweak$form efficiec&, semi$stro"$form efficiec& a!
stro"$form efficiec&, each of which has !ifferet implicatios for how markets work% I weak$
form efficiec&, future prices caot (e pre!icte! (& aal&.i" price from the past% E)cess
returs caot (e eare! i the lo" ru (& usi" i#estmet strate"ies (ase! o historical share
prices or other historical !ata% Techical aal&sis techi@ues will ot (e a(le to cosistetl&
pro!uce e)cess returs, thou"h some forms of fu!ametal aal&sis ma& still pro#i!e e)cess
returs% :hare prices e)hi(it o serial !epe!ecies, meai" that there are o ?patters? to asset
prices% This implies that future price mo#emets are !etermie! etirel& (& iformatio ot
cotaie! i the price series% >ece, prices must follow a ra!om walk% This 'soft' EM> !oes ot
re@uire that prices remai at or ear e@uili(rium, (ut ol& that market participats ot (e a(le to
s&stematicall& profit from market 'iefficiecies'% >owe#er, while EM> pre!icts that all price
mo#emet ,i the a(sece of cha"e i fu!ametal iformatio- is ra!om ,i%e%, o$tre!i"-,
ma& stu!ies ha#e show a marke! te!ec& for the stock markets to tre! o#er time perio!s of
weeks or lo"er a! that, moreo#er, there is a positi#e correlatio (etwee !e"ree of tre!i"
a! le"th of time perio! stu!ie! ,(ut ote that o#er lo" time perio!s, the tre!i" is siusoi!al
i appearace-% Qarious e)plaatios for such lar"e a! apparetl& o$ra!om price mo#emets
ha#e (ee promul"ate!% /ut the (est e)plaatio seems to (e that the !istri(utio of stock market
prices is o$Faussia ,i which case EM>, i a& of its curret forms, woul! ot (e strictl&
applica(le-% The pro(lem of al"orithmicall& costructi" prices which reflect all a#aila(le
iformatio has (ee stu!ie! e)tesi#el& i the fiel! of computer sciece% =or e)ample, the
comple)it& of fi!i" the ar(itra"e opportuities i pair (etti" markets has (ee show to (e
NP$har!% I semi$stro"$form efficiec&, it is implie! that share prices a!Hust to pu(licl&
a#aila(le ew iformatio #er& rapi!l& a! i a u(iase! fashio, such that o e)cess returs
ca (e eare! (& tra!i" o that iformatio% :emi$stro"$form efficiec& implies that either
fu!ametal aal&sis or techical aal&sis techi@ues will (e a(le to relia(l& pro!uce e)cess
returs% To test for semi$stro"$form efficiec&, the a!Hustmets to pre#iousl& ukow ews
must (e of a reasoa(le si.e a! must (e istataeous% To test for this, cosistet upwar! or
!owwar! a!Hustmets after the iitial cha"e must (e looke! for% If there are a& such
a!Hustmets it woul! su""est that i#estors ha! iterprete! the iformatio i a (iase! fashio
a! hece i a iefficiet maer% I stro"$form efficiec&, share prices reflect all iformatio,
pu(lic a! pri#ate, a! o oe ca ear e)cess returs% If there are le"al (arriers to pri#ate
iformatio (ecomi" pu(lic, as with isi!er tra!i" laws, stro"$form efficiec& is impossi(le,
e)cept i the case where the laws are ui#ersall& i"ore!% To test for stro"$form efficiec&, a
market ee!s to e)ist where i#estors caot cosistetl& ear e)cess returs o#er a lo" perio!
of time% E#e if some moe& maa"ers are cosistetl& o(ser#e! to (eat the market, o
refutatio e#e of stro"$form efficiec& follows+ with hu!re!s of thousa!s of fu! maa"ers
worl!wi!e, e#e a ormal !istri(utio of returs ,as efficiec& pre!icts- shoul! (e e)pecte! to
pro!uce a few !o.e ?star? performers%
RE:EARC> MET>O0OLOFD
Research Metho!olo"&+
This report is (ase! o primar& as well seco!ar& !ata, howe#er primar& !ata collectio was
"i#e more importace sice it is o#erheari" factor i attitu!e stu!ies% Oe of the most
importat users of research metho!olo"& is that it helps i i!etif&i" the pro(lem, collecti",
aal&.i" the re@uire! iformatio !ata a! pro#i!i" a alterati#e solutio to the pro(lem %It
also helps i collecti" the #ital iformatio that is re@uire! (& the top maa"emet to assist
them for the (etter !ecisio maki" (oth !a& to !a& !ecisio a! critical oes%
0ata sources+
Research is totall& (ase! o primar& !ata% :eco!ar& !ata ca (e use! ol& for the referece%
Research has (ee !oe (& primar& !ata collectio, a! primar& !ata has (ee collecte! (&
iteracti" with #arious people% The seco!ar& !ata has (ee collecte! throu"h #arious Hourals
a! we(sites%
:ample si.e+
The sample si.e of m& proHect is limite! to 12 people ol&%
:ample !esi"+
0ata has (ee presete! with the help of (ar "raph, pie charts, lie "raphs etc%
Limitatio+
me of the persos were ot so resposi#e% Possi(ilit& of error i !ata collectio (ecause ma&
of i#estors ma& ha#e ot "i#e actual aswers of m& @uestioaire :i.e ma& ot a!e@uatel&
represet the whole market%me respo!ets were reluctat to !i#ul"e persoal iformatio
which ca affect the #ali!it& of all resposes%
0ATA ANALD:I: G INTERPRETATION
ANALD:I: G INTERPRETATION O= T>E 0ATA
8% ,A- A"e !istri(utio of the I#estors of Pal"har%
A"e Froup YZ ;2 ;8$;1 ;B$0=C
!% Reliace e% Kotak f% Other% specif&
3% Ehe &ou pla to i#est &our moe& i asset maa"emet co% which AMC will &ou preferW
Assets Maa"emet Co%
a% :/IM=
(% *TI
c% Reliace
!% >0=C
e% Kotak
f% ICICI
82% Ehich Chael will &ou prefer while i#esti" i Mutual =u!W
,a- =iacial A!#isor ,(- /ak ,c- AMC
88% Ehe &ou i#est i Mutual =u!s which mo!e of i#estmet will &ou preferW Pl% tick ,\-%
a% Oe Time I#estmet (% :&stematic I#estmet Pla ,:IP-
86% Ehe &ou wat to i#est which t&pe of fu!s woul! &ou chooseW
a% >a#i" ol& !e(t
portfolio
(% >a#i" !e(t G e@uit&
portfolio%
c% Ol& e@uit& portfolio%
8;% >ow woul! &ou like to recei#e the returs e#er& &earW Pl% tick ,\-%
a% 0i#i!e! pa&out (% 0i#i!e! re$ c% Frowth i NAQ
i#estmet
8
CAPITAL MARKET
The capital market is the market for securities, where Compaies a! "o#ermets ca raise
lo"$term fu!s% It is a market i which moe& is let for perio!s lo"er tha a &ear% A atio's
capital market iclu!es such fiacial istitutios as (aks, isurace compaies, a! stock
e)cha"es that chael lo"$term i#estmet fu!s to commercial a! i!ustrial (orrowers%
*like the moe& market, o which le!i" is or!iaril& short term, the capital market t&picall&
fiaces fi)e! i#estmets like those i (uil!i"s a! machier&%
Nature a! Costituets+
The capital market cosists of um(er of i!i#i!uals a! istitutios ,iclu!i" the "o#ermet-
that caali.e the suppl& a! !ema! for lo"$term capital a! claims o capital% The stock
e)cha"e, commercial (aks, co$operati#e (aks, sa#i" (aks, !e#elopmet (aks, isurace
compaies, i#estmet trust or compaies, etc%, are importat costituets of the capital markets%
The capital market, like the moe& market, has three importat Compoets, amel& the
suppliers of loaa(le fu!s, the (orrowers a! the Iterme!iaries who !eal with the lea!ers o
the oe ha! a! the /orrowers o the other% The !ema! for capital comes mostl& from
a"riculture, i!ustr&, tra!e The "o#ermet% The pre!omiat form of i!ustrial or"ai.atio
!e#elope! Capital Market (ecomes a ecessar& ifrastructure for fast i!ustriali.atio% Capital
market ot cocere! solel& with the issue of ew claims o capital, /ut also with !eali" i
e)isti" claims%
0e(t or /o! market +
The (o! market ,also kow as the !e(t, cre!it, or fi)e! icome market- is a fiacial market
where participats (u& a! sell !e(t securities, usuall& i the form of (o!s% As of 123, the si.e
of the worl!wi!e (o! market ,total !e(t outsta!i"- is a estimate! 456%6 trillio 789, of which
the si.e of the outsta!i" *%:% (o! market !e(t was 4;8%6 trillio accor!i" to /I: ,or
alterati#el& 4;owe#er, a small um(er of (o!s, primaril&
corporate, are liste! o e)cha"es% Refereces to the ?(o! market? usuall& refer to the
"o#ermet (o! market, (ecause of its si.e, li@ui!it&, lack of cre!it risk a!, therefore,
sesiti#it& to iterest rates% /ecause of the i#erse relatioship (etwee (o! #aluatio a!
iterest rates, the (o! market is ofte use! to i!icate cha"es i iterest rates or the shape of
the &iel! cur#e%
Cotets +
A 8 Market structure
A 6 T&pes of (o! markets
A ; /o! market participats
A < /o! market si.e
A 1 /o! market #olatilit&
A B /o! market ifluece
A C /o! i#estmets
A 5 /o! i!ices
Market structure +
/o! markets i most coutries remai !ecetrali.e! a! lack commo e)cha"es like stock,
future a! commo!it& markets% This has occurre!, i part, (ecause o two (o! issues are
e)actl& alike, a! the #ariet& of (o! securities outsta!i" "reatl& e)cee!s that of stocks%
>owe#er, the New Dork :tock E)cha"e ,ND:E- is the lar"est cetrali.e! (o! market,
represeti" mostl& corporate (o!s% The ND:E mi"rate! from the Automate! /o! :&stem
,A/:- to the ND:E /o!s tra!i" s&stem i April 12C a! e)pects the um(er of tra!e! issues
to icrease from 8222 to B222% /esi!es other causes, the !ecetrali.e! market structure of the
corporate a! muicipal (o! markets, as !isti"uishe! from the stock market structure, results
i hi"her trasactio costs a! less li@ui!it&% A stu!& performe! (& Profs >arris a! Piwowar i
12owe#er, (u&ers a! sellers
are electroicall& matche!% Oe or more NA:0AO market makers will alwa&s pro#i!e a (i! a!
ask price at which the& will alwa&s purchase or sell 'their' stock% The Paris /ourse, ow part of
Euroe)t, is a or!er$!ri#e, electroic stock e)cha"e% It was automate! i the late 8352s% Prior
to the 8352s, it cosiste! of a ope outcr& e)cha"e% :tock(rokers met o the tra!i" floor or
the Palais /ro"iart% I 835B, the CAT: tra!i" s&stem was itro!uce!, a! the or!er matchi"
process was full& automate!% =rom time to time, acti#e tra!i" ,especiall& i lar"e (locks of
securities- ha#e mo#e! awa& from the 'acti#e' e)cha"es% :ecurities firms, le! (& */: AF,
Fol!ma :achs Froup Ic% a! Cre!it :uisse Froup, alrea!& steer 86 percet of *%:% securit&
tra!es awa& from the e)cha"es to their iteral s&stems% That share pro(a(l& will icrease to 85
percet (& 6282 as more i#estmet (aks (&pass the ND:E a! NA:0AO a! pair (u&ers a!
sellers of securities themsel#es, accor!i" to !ata compile! (& /osto$(ase! Aite Froup LLC, a
(rokera"e$i!ustr& cosultat% Now that computers ha#e elimiate! the ee! for tra!i" floors
like the /i" /oar!'s, the (alace of power i e@uit& markets is shifti"% /& (ri"i" more or!ers
i$house, where cliets ca mo#e (i" (locks of stock ao&mousl&, (rokers pa& the e)cha"es
less i fees a! capture a (i""er share of the 488 (illio a &ear that istitutioal i#estors pa& i
tra!i" commissios as well as the surplus of the cetur& ha! take place%
Market participats+
A few !eca!es a"o, worl!wi!e, (u&ers a! sellers were i!i#i!ual i#estors, such as wealth&
(usiessme, with lo" famil& histories ,a! emotioal ties- to particular corporatios% O#er
time, markets ha#e (ecome more ?istitutioali.e!?J (u&ers a! sellers are lar"el& istitutios
,e%"%, pesio fu!s, isurace compaies, mutual fu!s, i!e) fu!s, e)cha"e$tra!e! fu!s,
he!"e fu!s, i#estor "roups, (aks a! #arious other fiacial istitutios-% The rise of the
istitutioal i#estor has (rou"ht with it some impro#emets i market operatios% Thus, the
"o#ermet was resposi(le for ?fi)e!? ,a! e)or(itat- fees (ei" marke!l& re!uce! for the
Rsmall' i#estor, (ut ol& after the lar"e istitutios ha! maa"e! to (reak the (rokers' soli!
froto fees% ,The& the wet to 'e"otiate!' fees, (ut ol& for lar"e istitutios% >owe#er,
corporate "o#erace ,at least i the Eest- has (ee #er& much a!#ersel& affecte! (& the rise of
,lar"el& 'a(setee'- istitutioal 'owers'%
>istor& +
Esta(lishe! i 85C1, the /om(a& :tock E)cha"e is Asia's first stock e)cha"e% I 86th cetur&
=race the courratiers !e cha"e were cocere! with maa"i" a! re"ulati" the !e(ts of
a"ricultural commuities o (ehalf of the (aks% /ecause these me also tra!e! with !e(ts, the&
coul! (e calle! the first (rokers% A commo mis(elief is that i late 8;th cetur& /ru"es
commo!it& tra!ers "athere! isi!e the house of a ma calle! Qa !er /eur.e, a! i 8;23 the&
(ecame the ?/ru"se/eurse?, istitutioali.i" what ha! (ee, util the, a iformal meeti",
(ut actuall&, the famil& Qa !er /eur.e ha! a (uil!i" i Atwerp where those "atheri"s
occurre!J the Qa !er /eur.e ha! Atwerp, as most of the merchats of that perio!, as their
primar& place for tra!i"% The i!ea @uickl& sprea! arou! =la!ers a! ei"h(ori" couties a!
?/eur.e? soo opee! i Fhet a! Amster!am% I the mi!!le of the 8;th cetur&, Qeetia
(akers (e"a to tra!e i "o#ermet securities% I 8;18 the Qeetia "o#ermet outlawe!
sprea!i" rumors ite!e! to lower the price of "o#ermet fu!s% /akers i Pisa, Qeroa,
Feoa a! =lorece also (e"a tra!i" i "o#ermet securities !uri" the 8owe#er,
these compaies accrue o itrisic #alue to the lo"$term sta(ilit& of the America ecoom&,
(ut rather ol& short$term profits to America (usiess me a! the ChieseJ althou"h, whe the
forei" compa& has a presece i the ew market, this ca (eefit the market's citi.es%
Co#ersel&, there are #er& few lar"e forei" corporatios liste! o the Toroto :tock E)cha"e
T:T, Caa!a's lar"est stock e)cha"e% This !iscretio has isulate! Caa!a to some !e"ree to
worl!wi!e fiacial co!itios% I or!er for the stock markets to trul& facilitate ecoomic "rowth
#ia lower costs a! (etter emplo&met, "reat attetio must (e "i#e to the forei" participats
(ei" allowe! i%
Relatio of the stock market to the mo!er fiacial s&stem +
The fiacial s&stems i most wester coutries wester has u!er"oe a remarka(le
trasformatio% Oe feature of this !e#elopmet is !isiterme!iatio% A portio of the fu!s
i#ol#e! i sa#i" a! fiaci", flows !irectl& to the fiacial markets istea! of (ei" route!
#ia the tra!itioal (ak le!i" a! !eposit operatios% The "eeral pu(lic's hei"htee! iterest
i i#esti" i the stock market, either !irectl& or throu"h mutual fu!s, has (ee a importat
compoet of this process% :tatistics show that i recet !eca!es shares ha#e ma!e up a
icreasi"l& lar"e proportio of househol!s' fiacial assets i ma& coutries% I the 83C2s, i
:we!e, !eposit accouts a! other #er& li@ui! assets with little risk ma!e up almost B2 percet
of househol!s' fiacial wealth, compare! to less tha 62 percet i the 122s% The maHor part of
this a!Hustmet i fiacial portfolios has "oe !irectl& to shares (ut a "oo! !eal ow takes the
form of #arious ki!s of istitutioal i#estmet for "roups of i!i#i!uals, e%"%, pesio fu!s,
mutual fu!s, he!"e fu!s, isurace i#estmet of premiums, etc% The tre! towar!s forms of
sa#i" with a hi"her risk has (ee accetuate! (& ew rules for most fu!s a! isurace,
permitti" a hi"her proportio of shares to (o!s% :imilar te!ecies are to (e fou! i other
i!ustriali.e! coutries% I all !e#elope! ecoomic s&stems, such as the Europea *io, the
*ite! :tates, Japa a! other !e#elope! atios, the tre! has (ee the same+ sa#i" has mo#e!
awa& from tra!itioal ,"o#ermet isure!- (ak !eposits to more risk& securities of oe sort or
aother%
The stock market, i!i#i!ual i#estors, a! fiacial risk +
Riskier lo"$term sa#i" re@uires that a i!i#i!ual possess the a(ilit& to maa"e the associate!
icrease! risks% :tock prices fluctuate wi!el&, i marke! cotrast to the sta(ilit& of ,"o#ermet
isure!- (ak !eposits or (o!s% This is somethi" that coul! affect ot ol& the i!i#i!ual
i#estor or househol!, (ut also the ecoom& o a lar"e scale% The followi" !eals with some of
the risks of the fiacial sector i "eeral a! the stock market i particular% This is certail&
more importat ow that so ma& ewcomers ha#e etere! the stock market, or ha#e ac@uire!
other 'risk&' i#estmets ,such as 'i#estmet' propert&, i%e%, real estate a! collecta(les-% Eith
each passi" &ear, the oise le#el i the stock market rises% Tele#isio commetators, fiacial
writers, aal&sts, a! market strate"ists are all o#ertaki" each other to "et i#estorUs messa"e
(oar!s, are e)cha"i" @uestioa(le a! ofte mislea!i" tips% Det, !espite all this a#aila(le
iformatio, i#estors fi! it icreasi"l& !ifficult to profit% :tock prices sk&rocket with little
reaso, the plummet Hust as @uickl&, a! people who ha#e ture! to i#esti" for their chil!re's
e!ucatio a! their ow retiremet (ecome fri"htee!%
metimes there appears to (e o rh&meor reaso to the market, ol& foll&% This is a @uote from the preface to a pu(lishe! (io"raph&
a(out the lo"$term #alue$oriete! stock i#estor Earre /uffett%739 /uffett (e"a his career
with 4822, a! 4822,222 from se#e (uilt himself a multi$(illio$!ollar fortue% The @uote
illustrates some of what has (ee happei" i the stock market !uri" the e! of the 62th
cetur& a! the (e"ii" of the 68st cetur&% Primar& Market, also calle! the ew issue market,
is the market for issui" ew securities% Ma& compaies, especiall& small a! me!ium scale,
eter the primar& market to raise moe& from the pu(lic to e)pa! their (usiesses% The& sell
their securities to the pu(lic throu"h a iitial pu(lic offeri"% The securities ca (e !irectl&
(ou"ht from the sharehol!ers, which is ot the case for the seco!ar& market% The primar&
market is a market for ew capitals that will (e tra!e! o#er a lo"er perio!% I the primar&
market, securities are issue! o a e)cha"e (asis% The u!erwriters, that is, the i#estmet
(aks, pla& a importat role i this market+ the& set the iitial price ra"e for a particular share
a! the super#ise the selli" of that share% I#estors ca o(tai ews of upcomi" shares ol&
o the primar& market% The issui" firm collects moe&, which is the use! to fiace its
operatios or e)pa! (usiess, (& selli" its shares% /efore selli" a securit& o the primar&
market, the firm must fulfill all the re@uiremets re"ar!i" the e)cha"e% After tra!i" i the
primar& market the securit& will the eter the seco!ar& market, where umerous tra!es happe
e#er& !a&% The primar& market accelerates the process of capital formatio i a coutr&'s
ecoom&% The primar& market cate"oricall& e)clu!es se#eral other ew lo"$term fiace
sources, such as loas from fiacial istitutios% Ma& compaies ha#e etere! the primar&
market to ear profit (& co#erti" its capital, which is (asicall& a pri#ate capital, ito a pu(lic
oe, releasi" securities to the pu(lic% This pheomea is kow as ?pu(lic issue? or ?"oi"
pu(lic%? There are three metho!s thou"h which securities ca (e issue! o the primar& market+
ri"hts issue, Iitial Pu(lic Offer ,IPO-, a! preferetial issue% A compa&'s ew offeri" is place!
o the primar& market throu"h a iitial pu(lic offer%
=uctioi" of Primar& Market +
A Primar& Mort"a"e Market
A Primar& Tar"et Market
A Trasactio Costs i Primar& Market
A PL i Primar& Market
A Re#i#al of I!ia Primar& Market
A Primar& :ecurities Market
A Pro(lems of I!ia Primar& Market
A I#estmet i Primar& Market
A Primar& Moe& market
A Iteratioal Primar& Market%
Associatio +
A IPO Primar& Market
A Primar& Capital Market+
:eco!ar& Market is the market where, ulike the primar& market, a i#estor ca (u& a securit&
!irectl& from aother i#estor i lieu of the issuer% It is also referre! as ?after market?% The
securities iitiall& are issue! i the primar& market, a! the the& eter ito the seco!ar&
market% All the securities are first create! i the primar& market a! the, the& eter ito the
seco!ar& market% I the New Dork :tock E)cha"e, all the stocks (elo" to the seco!ar&
market% I other wor!s, seco!ar& market is a place where a& t&pe of use! "oo!s is a#aila(le% I
the seco!ar& market shares are maeu#ere! from oe i#estor to other, that is, oe i#estor
(u&s a asset from aother i#estor istea! of a issui" corporatio%
, the seco!ar& marketshoul! (e li@ui!%
E)ample of :eco!ar& market+
I the New Dork :tock E)cha"e, i the *ite! :tates of America, all the securities (elo" to the
seco!ar& market
Importace of :eco!ar& Market+
:eco!ar& Market has a importat role to pla& (ehi! the !e#elopmets of a efficiet capital
market% :eco!ar& market coects i#estors' fa#oritism for li@ui!it& with the capital users' wish
of usi" their capital for a lo"er perio!% =or e)ample, i a tra!itioal partership, a parter ca
ot access the other parter's i#estmet (ut ol& his or her i#estmet i that partership, e#e
o a emer"ec& (asis% The if he or she ma& (reaks the owership of e@uit& ito parts a! sell
his or her respecti#e proportio to aother i#estor% This ki! of tra!i" is facilitate! ol& (& the
seco!ar& market
ROLE O= CAPITAL MARKET+
The primar& role of the capital market is to raise lo"$term fu!s for "o#ermets, (aks, a!
corporatios while pro#i!i" a platform for the tra!i" of securities% This fu!raisi" is
re"ulate! (& the performace of the stock a! (o! markets withi the capital market% The
mem(er or"ai.atios of the capital market ma& issue stocks a! (o!s i or!er to raise fu!s%
I#estors ca the i#est i the capital market (& purchasi" those stocks a! (o!s% The capital
market, howe#er, is ot without risk% It is importat for i#estors to u!ersta! market tre!s
(efore full& i#esti" i the capital market% To that e!, there are #arious market i!ices
a#aila(le to i#estors that reflect the preset performace of the market%
Re"ulatio of the Capital Market+
E#er& capital market i the worl! is moitore! (& fiacial re"ulators a! their respecti#e
"o#erace or"ai.atio% The purpose of such re"ulatio is to protect i#estors from frau! a!
!eceptio% =iacial re"ulator& (o!ies are also char"e! with miimi.i" fiacial losses, issui"
liceses to fiacial ser#ice pro#i!ers, a! eforci" applica(le laws%
The Capital MarketUs Ifluece o Iteratioal Tra!e+
Capital market i#estmet is o lo"er cofie! to the (ou!aries of a si"le atio% To!a&Us
corporatios a! i!i#i!uals are a(le, u!er some re"ulatio, to i#est i the capital market of
a& coutr& i the worl!% I#estmet i forei" capital markets has cause! su(statial
ehacemet to the (usiess of iteratioal tra!e%
The Primar& a! :eco!ar& Markets+
The capital market is also !epe!et o two su($markets V the primar& market a! the seco!ar&
market% The primar& market !eals with ewl& issue! securities a! is resposi(le for "eerati"
ew lo"$term capital% The seco!ar& market ha!les the tra!i" of pre#iousl&$issue! securities,
a! must remai hi"hl& li@ui! i ature (ecause most of the securities are sol! (& i#estors% A
capital market with hi"h li@ui!it& a! hi"h trasparec& is pre!icate! upo a seco!ar& market
with the same @ualities%
ROLE OF CAPITAL MARKET IN INDIA:
I!iaUs "rowth stor& has importat implicatios for the capital market, which has "row sharpl&
with respect to se#eral parameters M amouts raise! um(er of stock e)cha"es a! other
iterme!iaries, liste! stocks, market capitali.atio, tra!i" #olumes a! turo#er, market
istrumets, i#estor populatio, issuer a! iterme!iar& profiles% The capital market cosists
primaril& of the !e(t a! e@uit& markets% >istoricall&, it cotri(ute! si"ificatl& to mo(ili.i"
fu!s to meet pu(lic a! pri#ate compaiesU fiaci" re@uiremets% The itro!uctio of
e)cha"e$tra!e! !eri#ati#e istrumets such as optios a! futures has ea(le! i#estors to
(etter he!"e their positios a! re!uce risks% I!iaUs !e(t a! e@uit& markets rose from C1 per
cet i 8331 to 8;2 per cet of F0P i 121% /ut the "rowth relati#e to the *:, Mala&sia a!
uth Korea remais low a! lar"el& skewe!, i!icati" immese latet potetial% I!iaUs !e(tmarkets comprise "o#ermet (o!s a! the corporate (o! market ,comprisi" P:*s,
corporates, fiacial istitutios a! (aks-% I!ia compares well with other emer"i" ecoomies
i terms of sophisticate! market !esi" of e@uit& spot a! !eri#ati#es market, wi!esprea! retail
participatio a! resiliet li@ui!it&% :E/IUs measures such as su(missio of @uarterl& compliace
reports, a! compa& #aluatio o the lies of the :ar(aes$O)le& Act ha#e ehace! corporate
"o#erace% /ut eforcemet cotiues to (e a pro(lem (ecause of limite! traie! staff a!
compaies ot (ei" su(Hecte! to su(statial fies or le"al sactios% Fi#e the (oomi"
ecoom&, lar"e skille! la(our force, relia(le (usiess commuit&, cotiue! reforms a! "reater
"lo(al ite"ratio #i!icate! (& the i#estmet$"ra!e rati"s of Moo!&Us a! =itch, the et
cumulati#e portfolio flows from 12;$2B ,(o!s a! e@uities- amoute! to 4;1 (illio% The
um(er of forei" istitutioal i#estors re"istere! with :E/I rose from oe i 8336$3; to165
i 122$28, to a(out 8,222 i 12B$2C% I!iaUs stock market rose fi#e$fol! sice mi!$12; a!
outperforme! worl! i!ices with returs far outstrippi" other emer"i" markets, such as
Me)ico ,16 per cet-, /ra.il ,owe#er, this #iew has cha"e! rapi!l& as #ast amouts of iteratioal
i#estmet ha#e poure! ito our markets o#er the last !eca!e% The I!ia market is o lo"er
#iewe! as a static ui#erse (ut as a costatl& e#ol#i" market pro#i!i" attracti#e opportuities
to the "lo(al i#esti" commuit&% Now !uri" the preset fiacial crisis, we saw how capital
market stoo! still as the s&m(ol of (etter risk maa"emet practices a!opte! (& the I!ias%
Thou"h we o(ser#e! a hu"e fall i the sese) a! other stock market i!icators (ut that was all
!ue to low cofi!ece amo" the i#estors% /ecause (alace sheet of most of the I!ia
compaies liste! i the sese) were reflecti" profit e#e the people kept o with!rawi"
moe&% Ehile there was a paic i the capital market !ue to with!rawal (& the =IIs, we saw
I!ia istitutioal i#estors like isurace a! mutual fu!s comi" for the rescue u!er :E/I
"ui!elies so that the cofi!ece of the i#estors !oesUt "o low% :E/I also came up with #arious
orms iclu!i" more li(eral policies re"ar!i" participator& otes, restricti" the e)it from
close e!e! mutual fu!s etc% to (oost the i#estmet% Ehile talki" a(out currec& crisis, the
rupee kept o !epreciati" a"aist the !ollar mail& !ue to the with!rawals (& =IIs%
, thecapital market trie! to attract =IIs oce a"ai% :E/I came up with ma& re#olutioar& reforms to
attract the forei" i#estors so that the !epreciatio of rupee coul! (e put to hault%
=ACTOR: A==ECTINF CAPITAL MARKET IN IN0IA+
The capital market is affecte! (& a ra"e of factors %
me of the factors which ifluece capitalmarket are as follows+$
A-Performace of !omestic compaies+$
The performace of the compaies or rather corporate eari"s is oe of the factors which has
!irect impact or effect o capital market i a coutr&% Eeak corporate eari"s i!icate that the
!ema! for "oo!s a! ser#ices i the ecoom& is less !ue to slow "rowth i per capita icome of
people % /ecause of slow "rowth i !ema! there is slow "rowth i emplo&met which meas
slow "rowth i !ema! i the ear future% Thus weak corporate eari"s i!icate a#era"e or ot
so "oo! prospects for the ecoom& as a whole i the ear term% I such a sceario the i#estors
, (oth !omestic as well as forei" - woul! (e war& to i#est i the capital market a! thus there
is (ear market like situatio% The opposite case of it woul! (e ro(ust corporate eari"s a! itUs
positi#e impact o the capital market% The corporate eari"s for the April V Jue @uarter for the
curret fiscal has (ee "oo!% The compaies like TC:, Ifos&s, Maruti :u.uki, /harti Airtel,
ACC, ITC, Eipro, >0=C, /iai cemet, I0EA, Marico Caara /ak, Piramal >ealth, I!ia
cemets , *ltra Tech, LGT, Coca$Cola, Des /ak, 0r% Re!!&Us La(oratories, Orietal /ak of
Commerce, Ra(a)&, =ortis, :hree Cemet ,etc ha#e re"istere! "rowth i et profit compare! to
the correspo!i" @uarter a &ear a"o% Thus we see compaies from Ifrastructure sector,
=iacial :er#ices, Pharmaceutical sector, IT :ector, Automo(ile sector, etc% !oi" well % This
across the sector "rowth i!icates that the I!ia ecoom& is o the path of reco#er& which has
(ee positi#el& reflecte! i the stock market, rise i sese)G ift&- i the last two weeks% ,Jul&
8;$Jul& 6ar&aa G *ttar
Pra!esh% Thus !eficiet or !ela&e! mosoo i this part of the coutr& woul! !irectl& affect the
a"ricultural output i the coutr&% Apart from mosoo other atural calamities like =loo!s,
tsuami, !rou"ht, earth@uake, etc% also ha#e a impact o the capital market of a coutr&% The
I!ia Met 0epartmet ,IM0- o 6i"her icome also meas hi"her e)pe!iture a! hi"her
sa#i"s% This au"urs well for the ecoom& as hi"her e)pe!iture meas hi"her !ema! a!
hi"her sa#i"s meas hi"her i#estmet% Thus whe a ecoom& is "rowi" at a "oo! pace
capital market of the coutr& attracts more moe& from i#estors, (oth from withi a! outsi!e
the coutr& a! #ice $#ersa%
we ca sa& that "rowth prospects of a ecoom& !o ha#e aimpact o capital markets%
F- I#estor :etimet a! risk appetite +$
Aother factor which iflueces capital market is i#estor setimet a! their risk appetite% E#e
if the i#estors ha#e the moe& to i#est (ut if the& are ot cofi!et a(out the returs from their
i#estmet , the& ma& sta& awa& from i#estmet for some time%At the same time if the i#estors
ha#e low risk appetite , which the& were ha#i" i "lo(al a! I!ia capital market some four to
fi#e moths (ack !ue to "lo(al fiacial melt!ow a! recessioar& situatio i *%:% G some
parts of Europe , the& ma& sta& awa& from i#estmet a! wait for the ri"ht time to come%
IN0IAN :TOCK MARKET AN OQERQIEE
E#olutio+
I!ia :tock Markets are oe of the ol!est i Asia% Its histor& !ates (ack to earl& 12 &ears a"o%
The earliest recor!s of securit& !eali"s i I!ia are mea"re a! o(scure% The East I!ia
Compa& was the !omiat istitutio i those !a&s a! (usiess i its loa securities use! to (e
trasacte! towar!s the close of the ei"hteeth cetur&% /& 85;2's (usiess o corporate stocks
a! shares i /ak a! Cotto presses took place i /om(a&% Thou"h the tra!i" list was
(roa!er i 85;3, there were ol& half a !o.e (rokers reco"i.e! (& (aks a! merchats !uri"
85&!era(a! a! I!ore, the well$esta(lishe! e)cha"es, were
reco"i.e! u!er the Act%
me of the mem(ers of the other Associatios were re@uire! to (ea!mitte! (& the reco"i.e! stock e)cha"es o a cocessioal (asis, (ut acti" o the priciple
of uitar& cotrol, all these pseu!o stock e)cha"es were refuse! reco"itio (& the Fo#ermet
of I!ia a! the& thereupo cease! to fuctio% Thus, !uri" earl& si)ties there were ei"ht
reco"i.e! stock e)cha"es i I!ia ,metioe! a(o#e-% The um(er #irtuall& remaie!
ucha"e!, for earl& two !eca!es% 0uri" ei"hties, howe#er, ma& stock e)cha"es were
esta(lishe!+ Cochi :tock E)cha"e ,8352-, *ttar Pra!esh :tock E)cha"e Associatio Limite!
,at Kapur, 8356-, a! Pue :tock E)cha"e Limite! ,8356-, Pal"har :tock E)cha"e
Associatio Limite! ,835;-, Fauhati :tock E)cha"e Limite! ,835 is
uwarrate!J whe pu(licl& a#aila(le iformatio is usta(le, the market ca (e Hust as usta(le%
>istorical (ack"rou!+
The efficiet$market h&pothesis was first e)presse! (& Louis /achelier, a =rech mathematicia,
i his 8322 !issertatio, ?The Theor& of
eculatio?% >is work was lar"el& i"ore! util the8312sJ howe#er (e"ii" i the ;2s scattere!, i!epe!et work corro(orate! his thesis% A
small um(er of stu!ies i!icate! that *: stock prices a! relate! fiacial series followe! a
ra!om walk mo!el%719 Research (& Alfre! Cowles i the U;2s a! U allows
that whe face! with ew iformatio, some i#estors ma& o#erreact a! some ma& u!erreact%
All that is re@uire! (& the EM> is that i#estors' reactios (e ra!om a! follow a ormal
!istri(utio patter so that the et effect o market prices caot (e relia(l& e)ploite! to make a
a(ormal profit, especiall& whe cosi!eri" trasactio costs ,iclu!i" commissios a!
sprea!s-% Thus, a& oe perso ca (e wro" a(out the marketMi!ee!, e#er&oe ca (eM(ut
the market as a whole is alwa&s ri"ht% There are three commo forms i which the efficiet$
market h&pothesis is commol& state!Mweak$form efficiec&, semi$stro"$form efficiec& a!
stro"$form efficiec&, each of which has !ifferet implicatios for how markets work% I weak$
form efficiec&, future prices caot (e pre!icte! (& aal&.i" price from the past% E)cess
returs caot (e eare! i the lo" ru (& usi" i#estmet strate"ies (ase! o historical share
prices or other historical !ata% Techical aal&sis techi@ues will ot (e a(le to cosistetl&
pro!uce e)cess returs, thou"h some forms of fu!ametal aal&sis ma& still pro#i!e e)cess
returs% :hare prices e)hi(it o serial !epe!ecies, meai" that there are o ?patters? to asset
prices% This implies that future price mo#emets are !etermie! etirel& (& iformatio ot
cotaie! i the price series% >ece, prices must follow a ra!om walk% This 'soft' EM> !oes ot
re@uire that prices remai at or ear e@uili(rium, (ut ol& that market participats ot (e a(le to
s&stematicall& profit from market 'iefficiecies'% >owe#er, while EM> pre!icts that all price
mo#emet ,i the a(sece of cha"e i fu!ametal iformatio- is ra!om ,i%e%, o$tre!i"-,
ma& stu!ies ha#e show a marke! te!ec& for the stock markets to tre! o#er time perio!s of
weeks or lo"er a! that, moreo#er, there is a positi#e correlatio (etwee !e"ree of tre!i"
a! le"th of time perio! stu!ie! ,(ut ote that o#er lo" time perio!s, the tre!i" is siusoi!al
i appearace-% Qarious e)plaatios for such lar"e a! apparetl& o$ra!om price mo#emets
ha#e (ee promul"ate!% /ut the (est e)plaatio seems to (e that the !istri(utio of stock market
prices is o$Faussia ,i which case EM>, i a& of its curret forms, woul! ot (e strictl&
applica(le-% The pro(lem of al"orithmicall& costructi" prices which reflect all a#aila(le
iformatio has (ee stu!ie! e)tesi#el& i the fiel! of computer sciece% =or e)ample, the
comple)it& of fi!i" the ar(itra"e opportuities i pair (etti" markets has (ee show to (e
NP$har!% I semi$stro"$form efficiec&, it is implie! that share prices a!Hust to pu(licl&
a#aila(le ew iformatio #er& rapi!l& a! i a u(iase! fashio, such that o e)cess returs
ca (e eare! (& tra!i" o that iformatio% :emi$stro"$form efficiec& implies that either
fu!ametal aal&sis or techical aal&sis techi@ues will (e a(le to relia(l& pro!uce e)cess
returs% To test for semi$stro"$form efficiec&, the a!Hustmets to pre#iousl& ukow ews
must (e of a reasoa(le si.e a! must (e istataeous% To test for this, cosistet upwar! or
!owwar! a!Hustmets after the iitial cha"e must (e looke! for% If there are a& such
a!Hustmets it woul! su""est that i#estors ha! iterprete! the iformatio i a (iase! fashio
a! hece i a iefficiet maer% I stro"$form efficiec&, share prices reflect all iformatio,
pu(lic a! pri#ate, a! o oe ca ear e)cess returs% If there are le"al (arriers to pri#ate
iformatio (ecomi" pu(lic, as with isi!er tra!i" laws, stro"$form efficiec& is impossi(le,
e)cept i the case where the laws are ui#ersall& i"ore!% To test for stro"$form efficiec&, a
market ee!s to e)ist where i#estors caot cosistetl& ear e)cess returs o#er a lo" perio!
of time% E#e if some moe& maa"ers are cosistetl& o(ser#e! to (eat the market, o
refutatio e#e of stro"$form efficiec& follows+ with hu!re!s of thousa!s of fu! maa"ers
worl!wi!e, e#e a ormal !istri(utio of returs ,as efficiec& pre!icts- shoul! (e e)pecte! to
pro!uce a few !o.e ?star? performers%
RE:EARC> MET>O0OLOFD
Research Metho!olo"&+
This report is (ase! o primar& as well seco!ar& !ata, howe#er primar& !ata collectio was
"i#e more importace sice it is o#erheari" factor i attitu!e stu!ies% Oe of the most
importat users of research metho!olo"& is that it helps i i!etif&i" the pro(lem, collecti",
aal&.i" the re@uire! iformatio !ata a! pro#i!i" a alterati#e solutio to the pro(lem %It
also helps i collecti" the #ital iformatio that is re@uire! (& the top maa"emet to assist
them for the (etter !ecisio maki" (oth !a& to !a& !ecisio a! critical oes%
0ata sources+
Research is totall& (ase! o primar& !ata% :eco!ar& !ata ca (e use! ol& for the referece%
Research has (ee !oe (& primar& !ata collectio, a! primar& !ata has (ee collecte! (&
iteracti" with #arious people% The seco!ar& !ata has (ee collecte! throu"h #arious Hourals
a! we(sites%
:ample si.e+
The sample si.e of m& proHect is limite! to 12 people ol&%
:ample !esi"+
0ata has (ee presete! with the help of (ar "raph, pie charts, lie "raphs etc%
Limitatio+
me of the persos were ot so resposi#e% Possi(ilit& of error i !ata collectio (ecause ma&of i#estors ma& ha#e ot "i#e actual aswers of m& @uestioaire :i.e ma& ot a!e@uatel&
represet the whole market%
me respo!ets were reluctat to !i#ul"e persoal iformatiowhich ca affect the #ali!it& of all resposes%
0ATA ANALD:I: G INTERPRETATION
ANALD:I: G INTERPRETATION O= T>E 0ATA
8% ,A- A"e !istri(utio of the I#estors of Pal"har%
A"e Froup YZ ;2 ;8$;1 ;B$0=C
!% Reliace e% Kotak f% Other% specif&
3% Ehe &ou pla to i#est &our moe& i asset maa"emet co% which AMC will &ou preferW
Assets Maa"emet Co%
a% :/IM=
(% *TI
c% Reliace
!% >0=C
e% Kotak
f% ICICI
82% Ehich Chael will &ou prefer while i#esti" i Mutual =u!W
,a- =iacial A!#isor ,(- /ak ,c- AMC
88% Ehe &ou i#est i Mutual =u!s which mo!e of i#estmet will &ou preferW Pl% tick ,\-%
a% Oe Time I#estmet (% :&stematic I#estmet Pla ,:IP-
86% Ehe &ou wat to i#est which t&pe of fu!s woul! &ou chooseW
a% >a#i" ol& !e(t
portfolio
(% >a#i" !e(t G e@uit&
portfolio%
c% Ol& e@uit& portfolio%
8;% >ow woul! &ou like to recei#e the returs e#er& &earW Pl% tick ,\-%
a% 0i#i!e! pa&out (% 0i#i!e! re$ c% Frowth i NAQ
i#estmet
8