Capital Market in India is a crucial part of the country’s financial system, facilitating long-term fund mobilization and allocation across various sectors. The components of India’s capital market can be broadly categorized into the primary market, secondary market, and several supportive institutions and intermediaries.
Primary Market
The primary market is where securities are created. It’s the market for new issues of securities, where companies, governments, or public sector institutions can raise capital through the issuance of shares, debentures, and other financial instruments.
Types of Issues in the Primary Market:
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Initial Public Offerings (IPOs):
When a company lists its shares on a stock exchange for the first time.
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Follow-on Public Offerings (FPOs):
Additional shares issued by a company that is already listed on a stock exchange.
- Rights Issue:
Shares offered to existing shareholders at a predetermined price, usually at a discount to the current market price.
- Private Placements:
Securities offered to a select group of investors and not to the general public.
Secondary Market
The secondary market is where existing securities are traded among investors, allowing for the liquidity and pricing of financial assets. This market are:
Major Stock Exchanges in India:
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Bombay Stock Exchange (BSE):
Bombay Stock Exchange (BSE) in India, established in 1875, is one of the oldest stock exchanges globally. It lists thousands of companies and is a leading exchange in terms of market transactions, measured by the number of trades.
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National Stock Exchange (NSE):
National Stock Exchange (NSE) of India, founded in 1992, is the leading stock exchange in India and is located in Mumbai. Known for introducing electronic trading in India, NSE revolutionized the Indian financial market, making trading transparent and accessible to a broader range of people. It offers a platform for trading in various segments such as equity, derivatives, and debt, and is the world’s largest derivatives exchange by volume. The NSE’s flagship index, the NIFTY 50, is used extensively as a barometer for the Indian capital markets.
Types of Trading Mechanisms:
- Equity Trading:
Involves buying and selling shares of publicly listed companies.
- Debt Instruments:
Trading in government bonds, corporate bonds, and other fixed-income securities.
- Derivatives:
Includes futures and options based on stocks and indexes.
Derivatives Market
This market allows for trading in instruments which derive their value from underlying assets (like stocks, bonds, commodities). Derivatives are primarily used for hedging risks and speculating.
Debt Market
It comprises both government securities (G-Secs) and corporate bonds. The debt market is vital for raising funds without diluting company ownership.
Depositories
These institutions hold securities (like shares or bonds) of investors in electronic form. Examples in India are:
- National Securities Depository Limited (NSDL)
- Central Depository Services Limited (CDSL)
Regulatory Bodies
The functioning and integrity of the capital market are overseen by regulatory bodies:
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Securities and Exchange Board of India (SEBI):
The primary regulator for the capital markets in India, responsible for protecting investor interests and regulating the securities market.
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Reserve Bank of India (RBI):
Although primarily concerned with monetary policy, it also regulates the money market and influences the capital market.
Market Intermediaries
These include a range of entities that facilitate the smooth functioning of the capital markets:
- Stock Brokers and Sub-brokers
- Merchant Bankers
- Registrars to an Issue and Share Transfer Agents
- Portfolio Managers
- Investment Advisers
- Underwriters
Other Participants
- Mutual Funds:
Pool money from the investing public and invest in a diversified portfolio of securities.
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Venture Capital Funds:
Invest in early-stage companies.
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Credit Rating Agencies:
Provide ratings for the various debt instruments, influencing the cost of borrowing.