22-05-2012, 01:39 PM
AN OVERVIEW OF THE INDIAN SECURITIES MARKET
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1.1 Market Segments
Securities markets provide a channel for allocation of savings to those who have a productive need for them. The securities market has two interdependent and inseparable segments: (i) primary market and (ii) secondary market.
1.1.1 Primary Market
Primary market provides an opportunity to the issuers of securities, both
Government and corporations, to raise resources to meet their requirements of investment. Securities, in the form of equity or debt, can be issued in domestic /international markets at face value, discount or premium. The primary market issuance is done either through public issues or private placement. Under Companies Act, 1956, an issue is referred as public if it results in allotment of securities to 50 investors or more. However, when the issuer makes an issue of securities to a select group of persons not exceeding 49 and which is neither a rights issue nor a public issue it is called a private placement.
1.1.2 Secondary Market
Secondary market refers to a market where securities are traded after being offered to the public in the primary market or listed on the Stock Exchange. Secondary market comprises of equity, derivatives and the debt markets. The secondary market is operated through two mediums, namely, the Over-the-Counter (OTC) market and the Exchange-Traded market. OTC markets are informal markets where trades are negotiated.
1.2 Key Indicators of Securities Market
1.2.1 Index
An Index is used to give information about the price movements of products in the financial, commodities or any other markets. Stock market indices are meant to capture the overall behaviour of the equity markets. The stock market index is created by selecting a group of stocks that are representative of the whole market or a specified sector or segment of the market. The bluechip index of NSE is S&P CNX Nifty.
1.2.2 Market Capitalisation
Market capitalisation is defined as value of all listed shares on the country’s exchanges. It is computed on a daily basis. Market capitalisation of a particular company on a particular day can be computed as product of the number of shares outstanding and the closing price of the share. Here the number of outstandingshares refers to the issue size of the stock.
1.3 Products and Participants
1.3.1 Products
Financial markets facilitate reallocation of savings from savers to entrepreneurs. Savings are linked to investments by a variety of intermediaries through a range of complex financial products called “securities”. Under the Securities Contracts (Regulation) Act [SC®A], 1956, “securities” include (i) shares, bonds, scrips, stocks or other marketable securities of like nature in or of any incorporate company or
body corporate, (ii) government securities, (iii) derivatives of securities, (iv) units of collective investment scheme, (v) interest and rights in securities, and security receipt or any other instruments so declared by the central government. Broadly, securities can be of three types - equities, debt securities and derivatives.
1.3.2 Participants
The securities market has essentially three categories of participants (i) the investors,(ii) the issuers, (iii) the intermediaries (Figure 1.1). These participants are regulated by the Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), Ministry of Corporate Affairs (MCA) and the Department of Economic Affairs (DEA) of the Ministry of Finance.