EMERGING TRENDS IN CAPITAL

MARKET

WHAT IS CAPITAL MARKET????• A market for securities  (debt or equity) , where

business enterprises and governments can raise long-term funds.

• The capital market includes :

• Stock market (equity securities)

• The bond market (debt).

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HISTORY OF INDIAN CAPITAL MARKET• 1860 - The opening of the Suez Canal.

• 1875 -The Stock Exchange, Mumbai, came into existence.

• 1927-The Bombay Stock Exchange recognized under the Bombay Securities Contracts Control Act, 1925.

• 1946 to 1980 – Influence of Sir Phiroze Jeejeebhoy .

• 1988 – SEBI established.

• 1992 – Legal Status to SEBI

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INDIAN CAPITAL MARKET PRE-LPG (BEFORE 1991)• Trading was limited to equity shares

• Longer settlement period.

• Primary market not in the main stream of financial system.

• Poor disclosure in prospectus.

• Stock exchange run as broker clubs

• Private sector mutual funds not permitted.

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• Strategy of Liberalisation,Privatisation & Globalisation leading to financial sector reforms.

• Emergence of IT as a strategic tool to enhance speed , efficiency & transparency in operations.

• Power to regulate stock exchange delegated to SEBI by government.

• Shift from floor based trading to fully computerised trading known as BOLT (BSE Online Trading ) and NEAT (National Exchange Automated Trading ) system.

INDIAN CAPITAL MARKET POST-LPG(AFTER 1991)

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CAUSES FOR EMERGING TRENDS

• Lack of transparency

• Physical settlement

• Variety of manipulative practices

• Institutional deficiencies

• Insider trading6

RECENT TRENDS IN CAPITAL MARKET

Establishment of SEBI :

• The Securities and Exchange Board of India (SEBI) was established in 1988. It got a legal status in 1992.

• SEBI was primarily set up to regulate the activities of the merchant banks, to control the operations of mutual funds, to work as a promoter of the stock exchange activities and to act as a regulatory authority of new issue activities of companies.

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Candid Performance of Indian Economy :

• It has attracted a huge inflow of Foreign Institutional Investments (FII).

• The massive entry of FIIs in the Indian capital market has given good appreciation for the Indian investors in recent times

• Similarly many new companies are emerging on the horizon of the Indian capital market to raise capital for their expansions.

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Growing Mutual Fund Industry :

• The growing of mutual funds in India has certainly helped the capital market to grow.

• Public sector banks, foreign banks, financial institutions and joint mutual funds between the Indian and foreign firms have launched many new funds.

• A big diversification in terms of schemes, maturity, etc. has taken place in mutual funds in India. 9

Growing Stock Exchanges : • The numbers of Stock Exchanges in India

are increasing.

• Initially the BSE was the main exchange, but now after the setting up of the NSE and the OTCEI, stock exchanges have spread across the country.

• Recently a new Inter-connected Stock Exchange of India has joined the existing stock exchanges.

• The Inter-connected Stock Exchange of India Limited (ISE) is a national-level stock exchange, providing trading, clearing, settlement, risk management and surveillance support to its Trading Members.

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Growing Merchant Banking Activities :

• Many Indian and foreign commercial banks haves set up their merchant banking divisions in the last few years.

• These divisions provide financial services such as underwriting facilities, issue organizing, consultancy services, etc. It has proved as a helping hand to factors related to the capital market.

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Growing of Electronic Transactions :

• The physical transaction with more

paper work is reduced.

• It saves money, time and energy of investors.

• Thus it has made investing safer and hassle free encouraging more people to join the capital market.

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Growth of Derivative Transactions :

• Since June 2000, the NSE has introduced the derivatives trading in the equities.

• In November 2001 it also introduced the future and options transactions.

• These innovative products have given variety for the investment leading to the expansion of the capital market.

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What Does Derivative Mean?

A security whose price is dependent upon or derived from one or more underlying assets.

The most common underlying assets include stocks, bonds, commodities, currencies, interest rates etc

Types of derivatives• Forwards

• Futures

• Options

• swaps 14

Insurance Sector Reforms :

• Indian insurance sector has also witnessed massive reforms in last few years.

• The Insurance Regulatory and Development Authority (IRDA) was set up in 2000.

• It paved the entry of the private insurance firms in India. As many insurance companies invest their money in the capital market, it has expanded.

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Commodity Trading :

• Along with the trading of ordinary securities, the trading in commodities is also recently encouraged.

• The Multi Commodity Exchange (MCX) is set up.

• MCX India’s No 1 commodity exchange, is a state-of-the-art electronic commodity futures exchange.

• The Exchange has permanent recognition from the Government of India to facilitate online trading, and clearing and settlement operations for commodity futures across the country. 

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Investor's Protection :

• Under the purview of the SEBI the Central Government of India has set up the Investors Education and Protection Fund (IEPF) in 2001.

• It works in educating and guiding investors.

• It tries to protect the interest of the small investors from frauds and malpractices in the capital market.

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KEY CHALLENGES TO GROWTH OF CAPITAL MARKET

• Low retail equity ownership  

• Dominance of Metro Cities in Trading Volumes.

• Limited Capital Formation

• Higher Costs per Trade 

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CONCLUSION

• Different trends have led the growth of capital market and would continue to play their part.

• There are significant opportunities for productive and prudent financial innovation in India for capital market

• There remains scope for development of insurance exchanges, credit reinsurance market, freight derivatives, inflation derivatives etc

• yet like other emerging market, Indian market is also evolving and maturing. 

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THANK YOU

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