19-11-2012, 05:05 PM
Indian Capital Market
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What are Financial markets
Financial market is a market where financial instruments are exchanged or traded and
helps in determining the prices of the assets that are traded in and is also called the price
discovery process.
1. Organizations that facilitate the trade in financial products. For e.g. Stock exchanges
(NYSE, Nasdaq) facilitate the trade in stocks, bonds and warrants.
2. Coming together of buyer and sellers at a common platform to trade financial products
is termed as financial markets, i.e. stocks and shares are traded between buyers and
sellers in a number of ways including: the use of stock exchanges; directly between
buyers and sellers etc.
Financial markets may be classified on the basis of
• types of claims – debt and equity markets
• maturity – money market and capital market
• trade – spot market and delivery market
• deals in financial claims – primary market and secondary market
Basics of Stock Market Indices:
A stock market index is the reflection of the market as a whole. It is a representative of
the entire stock market. Movements in the index represent the average returns obtained
by the investors. Stock market index is sensitive to the news of:
• Company specific
• Country specific
Thus the movement in the stock index is also the reflection of the expectation of the
Capital market and money market:
Financial markets can broadly be divided into money and capital market.
Money Market: Money market is a market for debt securities that pay off in the short term
usually less than one year, for example the market for 90-days treasury bills. This market
encompasses the trading and issuance of short term non equity debt instruments including
treasury bills, commercial papers, bankers acceptance, certificates of deposits, etc.
Capital Market: Capital market is a market for long-term debt and equity shares. In this
market, the capital funds comprising of both equity and debt are issued and traded. This
also includes private placement sources of debt and equity as well as organized markets
like stock exchanges. Capital market includes financial instruments with more than one
year maturity
future performance of the companies listed on the exchange
Significance of Capital Markets
A well functioning stock market may help the development process in an economy
through the following channels:
1. Growth of savings,
2. Efficient allocation of investment resources,
3. Better utilization of the existing resources.
In market economy like India, financial market institutions provide the avenue by which
long-term savings are mobilized and channelled into investments. Confidence of the
investors in the market is imperative for the growth and development of the market. For
any stock market, the market Indices is the barometer of its performance and reflects the
prevailing sentiments of the entire economy. Stock index is created to provide investors
with the information regarding the average share price in the stock market. The ups and
downs in the index represent the movement of the equity market. These indices need to
represent the return obtained by typical portfolios in the country.