indian financial markets

1. 8th august 2015 2ND LECTURE

3. NSE – 7TH AUGUST

4. INDIAN FINANCIAL
MARKETS
BY
Dr vinod kumar

5. INDIAN FINANCIAL SYSTEM
Objectives
 The basic objective of this TOPIC
is to familiarize the student with
the Indian Financial System so
as to make them conversant with
the intricacies of the functioning
of Indian Financial System

6. Financial markets
 Nature
 Functions and
 Efficiency

7. FINANCIAL MARKETS
financial market is any mechanism for
trading Financial assets or claims.
• ITS Not ANY physical market place,
• ITS SIMPLY A set of transactions.
• IT includes– money market which
channels wholesale funds Usually for
less than one year----dominated by
major Banks and institutions.

8. • It Includes – securities or capital
market which deal with long
dated securities--- shares,
debentures, bonds etc.
• It Includes foreign exchange
markets.
• it Includes future & options
market to provide means of
hedging.

9. • FINANCIAL MARKETS
PROVIDE MECHANISM
THROUGH WHICH THE
CORPORATE FINANCIAL
MANAGER HAS ACCESS TO
A WIDE RANGE OF
SOURCES OF FINANCE &
INVESTMENT.

10. Functions of Financial System
•Need for various
Financial Markets

11. • FINANCIALMARKETS:-
• PROMOTE SAVING &
INVESTMENT
• BY WHICH THE FINANCIAL
REQUIREMENTS OF LENDERS
(SUPPLIERS)
• & BORROWERS (USERS) CAN
BE MET.

12. FINANCIAL SYSTEM
SEEKERS OF FUNDS SUPPLIERS OF FUNDS
FLOW OF SAVINGS
FLOW OF FINANCIAL SERVICES
FINANCIAL MARKETS DEFINED AS MARKETS WHERE FINANCIAL
ASSETS ARE CREATED OR TRANSFERRED.
 PRIMARY MARKETS MONEY MARKETS
 SECONDARY MARKETS CAPITAL MARKETS
MONEY MARKET : WELL DEVELOPED MONEY MARKET IS TO CHANNEL
SHORT TERM SAVINGS INTO SHORT TERM PRODUCTIVE
INVESTMENT.
CALL MONEY MARKET
TREASURY BILL MARKET , MARKETS FOR COMMERCIAL PAPER

13. INDIAN FINANCIAL SYSTEM
FUNCTIONS
SAVINGS
INVESTMENT
FINANCING
FINANCIAL MARKETS
FINANCIALSYSTEM
COMPRISES
 INSTITUTIONS
 MARKETS
 REGULATIONS
 MONEY Managers
 ANALYSTS
 TRANSACTION
 CLAIMS &
 LIABILITIES
MONEY MARKET
CALL MONEY MARKET
 COMMERCIAL PAPER(CP)
 CERTIFICATE OF
DEPOSIT(CD’S)
 MONEY MARKET
 MUTUAL FUNDS
CAPITAL MARKET
 PRIMARY MARKET
 SECONDARY MARKET
 SEBI
 PSU BONDS
 MUTUAL FUNDS

14. Financial System
 An institutional framework existing in
a country to enable financial
transactions
 Three main parts
• Financial assets (loans, deposits, bonds,
equities, etc.)
• Financial institutions (banks, mutual
funds, insurance companies, etc.)
• Financial markets (money market, capital
market, market, etc.)
 Regulation is another aspect of the
financial system (RBI, SEBI, IRDA,
FMC)

15. Financial assets/instruments
 Enable channelizing funds from surplus
units to deficit units
 There are instruments for savers such as
deposits, equities, mutual fund units, etc.
 There are instruments for borrowers such
as loans, overdrafts, etc.

16. Financial assets/instruments
Like businesses, governments too
raise funds through issuing of
bonds, Treasury bills, etc.
Instruments like PPF, KVP, etc.
are available to savers who wish
to lend money to the government

17. Financial
Institutions
 Includes institutions and mechanisms
which
• Affect generation of savings by the
community
• Mobilization of savings
• Effective distribution of savings
 Institutions are banks, insurance
companies, mutual funds-
promote/mobilize savings
 Individual investors, industrial and
trading companies- borrowers

18. Financial Institutions
 Scheduled Commercial Banks (three-fourths
share)
 – Public sector banks
 – Private Sector Banks
 – Foreign Banks
 – Regional Rural Banks
 Cooperative Banks
 – Rural Co-operatives
 – Urban Co-operative Banks (UCBs)
 Non-Banking Financial Companies (NBFCs)
 All-India Financial Institutions (AIFIs)

19. Financial Markets
 Money Market- for short-term funds (less
than a year)
• Organized (Banks)
• Unorganized (money lenders, chit funds,
etc.)
 Capital Market- for long-term funds
• Primary Issues Market
• ( secondary Stock) Market
• Bond Market

20. Structure of the Securities
Market
Securities
Market
Equity
Market
Debt
Market
Derivatives
Market
Government
Securities
Market
Corporate
Debt
Market
Money
Market
Options
Market
Futures
Market

21. Function of Securities Market
 Securities Markets is a mechanism whereby
buyers and sellers of securities can enter into
transactions to purchase and sell shares, bonds,
debentures or any other securities .
 Further, it performs an important role of
enabling corporate, entrepreneurs to raise
resources for their companies and business
ventures through public issues.

22. Participants in the Securities Market
 The securities market essentially has three
categories of participants, namely, the
issuers of securities, investors in securities
and the intermediaries, such as merchant
bankers, brokers etc.
 While the corporates and government raise
resources from the securities market to
meet their obligations, it is households that
invest their savings in the securities market.

23. Financial Markets
Money Market Capital Market
Call Money
Treasury Bills
Markets
Markets for
commercial paper
& certificates of
deposits
New Issue
Markets
Stock
Markets
IPO
FPO’S
Private
placement
Equity
Market
Debt
Market

24. Products, Participants and Functions
of financial markets
 Efficient Mechanism to transfer money from savers to
users (Entrepreneurs)
 Demand and supply of securities determine the price
 Intermediaries match the needs of users and suppliers
 Three categories of participants
 Issuer of securities
 Investor in securities
 Intermediaries
 The regulator- develops fair market practices, regulates
conduct of issuers and intermediaries

25. GOI
Ministry of Finance
RBISEBI
Depositories Companies
Broker
Dealers
Clearing
Corporations
Stock
Exchanges
Mutual
Funds
Banks
Registrar of
Companies
Merchant
Bankers
Registrar &
Transfer
Agents
Primary
Dealers
GOI
Dept of Co. Affairs
Depository
Participants
Structure of Indian Financial Markets
GOI
Ministry of Finance
RBISEBI
Depositories Companies
Broker
Dealers
Clearing
Corporations
Stock
Exchanges
Mutual
Funds
Banks
Registrar of
Companies
Merchant
Bankers
Registrar &
Transfer
Agents
Primary
Dealers
GOI
Dept of Co. Affairs
Depository
Participants
Structure of Indian Financial System:

26. II:FINANCIAL MARKETS
Are the centers or arrangements that provide
facilities for buying and selling of financial
claims and services
Like demand and supply of goods or services in
the product market or a factor market, there is
also demand for and supply of money (credit) in
the financial market and also a price for this
credit,called the rate of interest
Financial markets are however impersonal in
nature in the sense that the persons who want to
borrow need not come into Direct contact with
the persons ho wish to lend

27. CALLMONEYMKT TREASURYBILLSMKT
COMMERCIALBILLSMKT SHORTTERMLOANSMKT
MONEYMARKET
SECURITYMKT
LONGTERMLOANSMKT
CAPITALMARKET
FINANCIALMARKETS
(C)

28. PRIMARY
(DIRECT)
Deal in new financial
claims or new
securities; Thus new
issue market
Mobilize savings and
supply fresh or
additional capital to
business units
SECONDARY
(INDIRECT)
Deal in securities
already issued or
existing securities
Do not contribute
directly to supply of
additional capital but
facilitate it by making
the primary market
more liquid

29. MONEY MARKETS
Deal in short term
funds(maturity period
upto one year)
Collective name given
to various firms and
institutions that deal in
various grades of near
money instruments
CAPITAL MARKETS
Deal in medium term
and long term funds/
instruments
Long term funds are
collected and supplied
to the business
enterprises, individuals
and the government.

30. PRIMARY SECONDARY
FINANCIAL INSTRUMENTS
(A)

31. PRIMARY
(DIRECT)
Are financial claims
against the real sector
units
Created by real sector
units as ultimate
borrowers and issued
directly to ultimate
savers to raise funds
Bonds, shares, bills of
exchange,etc.
SECONDARY
(INDIRECT)
Are financial claims
issued by financial
institutions or
intermediaries against
themselves to raise
funds from
public(ultimate
savers)
Bank deposits,LIC
policies, mutual fund
units

32. SHORT TERM
< 1 YEAR
LONG TERM
> 1 YEAR
LONG TERM
> 5 YEARS
FINANCIAL INSTRUMENTS
(B)

33. Financial instruments differ in
terms of:
Liquidity
Security value
Marketability
Transferability
Maturity period
Transaction cost

34. Financial instruments differ in
terms of:
Risk and uncertainty
Tax status
Return on investment
Price fluctuations

35. FINANCIAL SERVICES
Financial institutions and markets provide a
wide variety of services:
Hire-purchase and installment credit
Underwriting
Credit cards

36. FINANCIAL SERVICES
Leasing
Discounting and rediscounting of bills
The provision of these services requires the
use of various types of financial instruments
and efficient markets

37. Institutional structure of
Capital Market
8/3/2015 37
Company Law
Board

38. Function Of SECONDARY
Market
Provides
Liquidity
Helps
in Price Discovery

39. THERE ARE PLENTIFUL
bulls bears and ------ in
secondary markets

40. PRIMARY MARKET
 The primary market provides the channel for
sale of new securities.
 Primary market provides opportunity to
issuers of securities; Government as well as
corporate, to raise resources to meet their
requirements of investment and/or
discharge some obligation.
 They may issue the securities at face value,
or at a discount/premium and these
securities may take a variety of forms such
as equity, debt etc.
 They may issue the securities in domestic
market and/or international market.

41. Classification of Issues

42. Primary issues
Qualified
institutions
placement (for
listed companies)
Preferential issue
Offer for sale
(existing shares)
Follow-on
public
offering
FPO
Initial
public
Offering
IPO
placement METHODRights
issue
Public issue
Private placement
(unlisted companies)

43. Difference between public issue
and private placement
 When an issue is not made to only a select set of
people but is open to the general public and any
other investor at large, it is a public issue.
 But if the issue is made to a select set of people,
it is called private placement.
 As per Companies Act, 1956, an issue becomes
public if it results in allotment to 50 persons or
more.
 This means an issue can be privately placed
where an allotment is made to less than 50
persons.

44. SECONDARY MARKETS