The capital market in India is a market for securities, where companies and governments can raise long term funds. It is a market designed for the selling and buying of stocks and bonds. Stocks and bonds are the two major ways to generate capital and long term funds. Thus, the bond markets and stock markets are considered as capital markets. The Indian securities market consists of primary (new securities) market and secondary (stock) market in both equity and debt. The primary market provides channel for sale of new securities while the secondary market deals in trading of previously issued securities. The issuers of securities issue new securities in the primary market to raise funds for investment. They do either through the public issue or private placement. There are mainly two types of issuer who issue securities. The corporate entities mainly issue equity and debt instruments (Shares and debentures) while Continue reading
Indian Financial System
Industrial Finance Corporation of India (IFCI)
At the same time raw industrial units were to be set up for industrializing the country. Government of India came forward to set up the Industrial Finance Corporation of India (IFCI) in July 1948 under a Special Act. The Industrial Development Bank of India, scheduled banks, insurance companies, investment trusts and co-operative banks are the shareholders of IFCI. The Government of India has guaranteed the repayment of capital and the payment of a minimum annual dividend. Since July I, 1993, the corporation has been converted into a company and it has been given the status of a Ltd. Company with the name Industrial Finance Corporations of India Ltd. IFCI has got itself registered with Companies Act, 1956. Before July I, 1993, general public was not permitted to hold shares of IFCI, only Government of India, RBI, Scheduled Banks, Insurance Companies and Co-operative Societies were holding the shares of IFCI. Management Continue reading
Initial Public Offering (IPO) Process
A corporate may raise capital in the primary market by way of an initial public offer, rights issue or private placement. An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is the largest source of funds with long or indefinite maturity for the company. Requirement of funds in order to finance the business activities motivates small entrepreneurs to approach the new issue market. Initial Public Offer (IPO) is a route for a company to raise capital from investors to meet the expenses for its projects and to get a global exposure by listed in the Stock Exchange. Company raising money through IPO is also called as company ‘going public’. From an investor’s point of view, IPO gives a chance to buy shares of a company, directly from the company at the price of their choice. Initial Public Offering (IPO) Process First Continue reading
Interest Rate Administration by Reserve Bank of India (RBI) during Global Recession/Subprime Crisis
The subprime crises triggered by a dramatic rise in mortgage delinquencies and foreclosures in the United States, lead to major adverse consequences for banks and financial markets around the globe. Administered interest rates are one of the major measures for controlling the money supply in an economy. Bank rate, repo rate and reverse repo rate are administered by the Reserve Bank of India. The records show high fluctuation in the interest rates in the past in India. The Reserve Bank of India (RBI) made drastic cuts in interest rates during the recession period to make sure that the banks and individuals get the benefit of higher credit availability. The Government of India had the stimulus package for the India Inc., where as the Banking sector has been successfully managed by RBI measures. Meaning of Interest Rates/Policy rates: Interest rates can be defined from different perspectives, for an Individual an interest Continue reading
Intermediary Participants in the Derivatives Market
The intermediary participants in the derivatives market are as follows: 1. Brokers For any purchase and sale, brokers perform an important function of bringing buyers and sellers together. As a member in any futures exchanges, may be any commodity or finance, one need not be a speculator, arbitrageur or hedger. By virtue of a member of a commodity or financial futures exchange one get a right to transact with other members of the same exchange. This transaction can be in the pit of the trading hall or on online computer terminal. All persons hedging their transaction exposures or speculating on price movement, need not be and for that matter cannot be members of futures or options exchange. A non-member has to deal in futures exchange through member only. This provides a member the role of a broker. His existence as a broker takes the benefits of the futures and options Continue reading
Financial Market Regulation in India (Guidelines Issued by RBI and SEBI)
Guidelines Issued by Reserve Bank of India for the Regulation of Financial Markets 1) Management oversight, policy/operational guidelines – The management of a Primary Dealer should bear primary responsibility for ensuring maintenance of appropriate standards of conduct and adherence to proper procedures by the entity. Primary Dealers (PD) should frame and implement suitable policy guidelines on securities transactions. Operational procedures and controls in relation to the day-to-day business operations should also be worked out and put in place to ensure that operations in securities are conducted in accordance with sound and acceptable business practices. With the approval of respective Boards, the PDs should clearly lay down the broad objectives to be followed while undertaking transactions in securities on their own account and on behalf of clients, clearly define the authority to put through deals, procedure to be followed while putting through deals, and adhere to prudential exposure limits, policy regarding Continue reading