The change in economic scenario and the growth have raised the interest of India as well as foreign institutional investors in India Capital Market. The recent massive structural reforms on economic and industry front in the form of de-licensing, rupee convertibility. Topping of the foreign founds.
On the other hand, in the quantum leap in activities / volume in Indian Capital Market. And other the hand and more importantly that the Indian Capital market has under gone atmospheres in the term of institutions, investments etc.,
The buoyancy in the capital market has appeared as a result of increasing, industrialization, growing awareness, globalization of capital market etc. The Indian Capital Market has two segments, the primary market and secondary market. The primary market is the channel for creation of new securities. The secondary market enables participants who hold securities to adjust their holdings in response to changes in their.
Very few investors would be willing buy shares in company unless they knew they could sell them if they needed the funds for some other purpose. The stock market and other capital markets allow investors to buy and sell stocks continuously.
EVOLUTION OF CAPITAL MARKET:
Indian stock markets are one of the oldest in Asia, Its history dates back to nearly 200 years ago, the earliest records of security dealings in India are meager and obscure. The east Indian company was dominant institution in those days business in its loan securities used to be transacted towards the close of the 18th century.
By 1830's business on corporate sticks and shares in bank and cotton press news took place in Bombay. Though, are trading list was broader in 1839 there were only half a dozen brokers recognized by banks and merchant during 1840 and 1850.
The 1850's witnessed a rapid development of commercial enterprise and brokerage business attached many men into the field and by 1860 the number of brokers increased into 60.
In 1860-61 the American civil war broke out and cotton supply from United State of Europe was stopped. Thus, share mania in India begun the number of brokers increased to about 200 to 250 however, at end of the American Civil War, in 1865, a disastrous slump begun (for example, bank of Bombay share which had touched Rs2850 could only be sold at Rs.87).
At the end of American civil war, the brokers who through out of Civil war in 1874, found a place in a street (now appropriately called as Dalal Street) where they would conveniently assemble and transact business in 1887. They formally established in Bombay the native share and stock Brokers Association (which is alternatively known as “The Sock Exchange”) in 1895, the Stock Exchange acquired a premise in the same street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay was consolidated.
Other Leading Cities in Stock Market Operations
Ahmedabad gained importance next to Bombay with respect to cotton textile Industry. After 1880 many mills originated from Ahmedabad and rapidly forged ahead. As new mils were floated the need for a Stock Exchange at Ahmedabad was realised and in 1894 the brokers formed “The Ahmedabad Share and Stock Brokers Association”.
What the Cotton textile Industry was Bombay and Ahmedabad the Jute Industry was to Calcutta. Also Tea and Coal Industries were the other major industrial groups in Calcutta. After the share Mania in 1861-65, in the 1870’s there was a sharp boom in Jute Shares, which was followed by a boom in tea shares in the 1880’s and 1890’s and Coal boom between 1904 and 1908. On June 1908, some leading Brokers formed “The Calcutta Stock Exchange Association”. In The beginning of the twentieth century. The industrial revolution was in the way in India with the Swadeshi Movement, and with the Inauguration of the Tata Iron and Steel Company Limited in 1907. An Important stage in industrial advancement under Indian Enterprise was reached.
Indian Cotton and jute textiles, steel, sugar, paper and flour mills and all companies generally enjoyed phenomenal prosperity. Due to the first world war.
In 1920, the then demure city of madras had the maiden thrill of Stock Exchange functioning in its midst. Under the name and style of the madras stock exchange with 100 members however when boom faded. The number of members stood reduced from 100 to 3 by 1923 and so it went out of existence.
In 1935 the stock market activity improved. Especially in South India where there was a rapid increase in the number of textile mills and many plantation companies were floated in 1937. A stock exchange was once again organized in Madras – Madras Stock Exchange Association (Pvt.) Limited (in 1957 the name was changed to madras stock exchange limited).
MEANING:
Capital market which deals in long term funds however some times these terms are used broadly to include markets for both short and long term funds.
The capital markets have three important components namely the suppliers of loanable funds the borrowers and the intermediaries who deal with the lenders on the one hand and the borrowers on the other. In developing countries like India the capital markets or sectors. The unorganised bankers and moneylenders are important constituents of the unorganised market. The co-operative institutions occupy a some what intermediate position between the organised and unorganised sectors of the capital market.
The Indian capital market is the market for long term loanable funds as distinct from money market which deals in short term funds. It refers to all the facilities and institutional arrangements for borrowing and lending “term funds” – medium term and long term funds. In principle capital market loans are used by industries mainly for fixed investment. It does not deal in capital goods but is concerned with raising money capital for purpose of investment.
NATURE OF THE INDIAN CAPITAL MARKET:
Like the money the Indian capital market also consists of an organised sector and an unorganised sector. In the organised market the demand for capital mostly from corporate enterprises and government and semi-government institutions and the supply comes from household savings institutional investor like banks investment trusts. Insurance companies finance corporations government and international financing agencies.
The unorganised market consists mostly of the indigenous bankers and moneylenders or the supply side. While in the organised sector the demand for funds is mostly for productive investment a large part of the demand for funds in the unorganised market is for consumption purpose in fact many purposes for which funds are very difficult to get from the organised market the existence of multiplicity of interest rates exorbitant rates of interest and lack of uniformity in their business dealings.
While the activities of the organised market are subject to a number of government controls the unorganised sector is by and large outside effective government control.
The organised sector has been subjected to increasing institutionalization. A large chunk of the sector is accounted for by the public sector financial institutions and there is government control over other segments of the organised capital market.
GROWTH OF INDIAN CAPITAL MARKET:
Indian Capital Market before independence:
Indian capital market was hardly existent in the pre-independence times. Agriculture was the mainstay of economy but there was hardly and long term lending to agricultural sector. Similarly the growth of industrial securities market was very much hampered since there very few companies and the number of securities traded in the stock exchanges was even smaller Indian capital market was dominated by gilt edged market for government and semi-government securities individual investors were very few in numbers and that too were no specialised intermediaries and agencies to mobilise the savings of the public and channelise them to investment.
Indian Capital Market after Independence:
Since independence, the India capital market has made widespread growth in all the areas as reflected by increased volume of savings and investments. In 1951, the number of Joint Stock Companies (which is a very important indicator of the growth of capital market) was 28.500. Both public limited and private limited companies with a paid up capital of Rs.775 crores, which in 1990 stood at 50,000 companies with a paid up Rs.20,000 been phenomenal in recent years. In keeping with the accelerated tempo of development of the Indian economy under the impetus of the five year plans.
IMPORTANCE OF CAPITAL MARKET :
The pace of economic development is conditioned, among things by the rated of long term capital formation, and capital formation is conditioned by the mobilization. Augmentation and channelisation of investible funds. The capital market serves a very useful purpose by pooling the capital resources of investible funds. The capital market serves a very useful purpose by polling the capital resource of the company and making them available to the enterprising investors. Well-developed capital markets augment resources by attracting and lending funds on global scale. The euro-currency and Eurobond markets are international finance markets in terms of both the supply and demand for funds.
The increase in the size of the industrial units and business corporations due to technological development, economies of scale and other factors has created a situation where in the capital at the disposal of one or few individual is quite insufficient to meet the investment demands. A developed capital market can mobilise and pool together even the small and scattered savings and augment the availability of investible funds. While the rapid grown of capital markets, the growth of Joint Stock business has in its turn encouraged the development of capital markets.
A developed capital market provides a number of profitable investment opportunities for the small savers.
CAPITAL MARKET REFORMS:
The number of stock exchanges has increased and the capital market has expanded substantially. However, the functioning of the stock exchanges were characterized by many shortcomings with long delays. Lack of transparency in procedure and vulnerability to price rigging and insider trading. A number of measures have been taken to overcome these problems.
The objectives of measure, broadly have been to
Provide for effective control of the stock exchange operations.
Increase the information flow and disclosures so as to enhance the transparency.
Protect the interests of investors.
Check insider trading.
Improve the operational efficiency of the stock exchanges.
Promote healthy development of the capital market.
Important measure of reform and development include the free pricing of capita issues. Book building mechanism, electronic trading, measures to widen and deepen the capita market, improvement in the trading. Clearing settlement systems, Promotion of dematerialization. Measures to reduce counter-party risk. Circuit breakers / price bands, measures to increase information flow and to enhance the transparency of the companies, and ushering in of fair trading practices including prohibition of insider trading. These measures have had some positive impact on the volatility, liquidity and transaction cost.
On other hand process of capital market reforms has been initiated since 1991-92 in the interest of healthy capital market development some of the significant reforms carried out are.
General Reforms:
Capital issue (control) Act. 1947 repealed and the office of the control over price and premium of shares removed companies are know free to approach capital market without prior governments permission subject to getting clearance by SEBI.
Through a notification issued under the Securities Contract (regulation) Act. 1956 the power of regulate stock exchange was delegated to SEBI. This includes recognition, rules articles voting right delivery contracts stock exchange nomination of public representatives.
Over the counter exchange of India (OTCE) and the national stock exchange of India with nationwide stock trading and electronic display clearing and settlement facilities commenced operations.
Foreign institutional investors (FIIS) allowed access to Indian capital markets on registration with SEBI.
Investment norms for NRIs liberalized so that NRIs and overseas corporate bodies can buy shares and debentures without prior permission of RBI
Following are the Primary Reforms:
Merchant banking brought under SEBI regulatory framework and a code of conduct issued.
The Banking to the issue brought under purview of SEBI for investor’s protection.
The due diligence certificate by lead managers regarding disclosures made in the offer document, has been made a part of the document itself for better accountability and transparency on the part of the lead managers.
The stock exchanges required to ensure that the companies concerned have a valid acknowledgement card issued by SEBI. SEBI votes the document to ensure that all disclosures have been made by the company in the offer document, at the time the company applies for listing of its securities to the stick exchange.
To reduce cost of issue, underwriting by issue made optional, subject to the condition that if an issue was not underwritten and was not able to collect 90% of the amount colleted would be refunded to investors.
SEBI gave up vetting of public issue offer documents SEBI’s comments of offer document. If any will be communicated with 21 days of filing, as is the case with rights issues.
Corporate advertisements, between the date of issue of acknowledgement card and the date of closure of the issue have been allowed. Subject to specific conditions which include the disclosure of risk factors.
Following are the secondary market reforms:
Investment norms for NRIs liberalized so that NRIs and overseas corporate bodies can buy shares and debentures without prior permission of RBI.
Renewal of transactions in B group securities prohibited so that transactions could be settled within 7 days.
SEBI introduced regulations governing substantial acquisition of shares and takeovers and lays down the conditions under which disclosures and mandatory public offers are to be made to the shareholders.
The Depositaries Act 1996, allows decartelization (and dematerialization) of securities in deposits though electronic book entry.
Stock Exchange asked to modify the listing agreement to provide for the payment of interest by companies to investors from 30th day closer of public issue.
Several restrictions, including limits on the side of issues proposed to be listed on OTCE removed, and listing criteria for OTCE, relaxed besides. OTCE permitted to move to a 5 day accounting period settlement.
A stock lending scheme has been introduced Stock lending has been approved in which short sellers could borrow securities through an intermediary before making such sales the approved intermediary should have a minimum net worth of Rs 50 crore.
On the other hand, in the quantum leap in activities / volume in Indian Capital Market. And other the hand and more importantly that the Indian Capital market has under gone atmospheres in the term of institutions, investments etc.,
The buoyancy in the capital market has appeared as a result of increasing, industrialization, growing awareness, globalization of capital market etc. The Indian Capital Market has two segments, the primary market and secondary market. The primary market is the channel for creation of new securities. The secondary market enables participants who hold securities to adjust their holdings in response to changes in their.
Very few investors would be willing buy shares in company unless they knew they could sell them if they needed the funds for some other purpose. The stock market and other capital markets allow investors to buy and sell stocks continuously.
EVOLUTION OF CAPITAL MARKET:
Indian stock markets are one of the oldest in Asia, Its history dates back to nearly 200 years ago, the earliest records of security dealings in India are meager and obscure. The east Indian company was dominant institution in those days business in its loan securities used to be transacted towards the close of the 18th century.
By 1830's business on corporate sticks and shares in bank and cotton press news took place in Bombay. Though, are trading list was broader in 1839 there were only half a dozen brokers recognized by banks and merchant during 1840 and 1850.
The 1850's witnessed a rapid development of commercial enterprise and brokerage business attached many men into the field and by 1860 the number of brokers increased into 60.
In 1860-61 the American civil war broke out and cotton supply from United State of Europe was stopped. Thus, share mania in India begun the number of brokers increased to about 200 to 250 however, at end of the American Civil War, in 1865, a disastrous slump begun (for example, bank of Bombay share which had touched Rs2850 could only be sold at Rs.87).
At the end of American civil war, the brokers who through out of Civil war in 1874, found a place in a street (now appropriately called as Dalal Street) where they would conveniently assemble and transact business in 1887. They formally established in Bombay the native share and stock Brokers Association (which is alternatively known as “The Sock Exchange”) in 1895, the Stock Exchange acquired a premise in the same street and it was inaugurated in 1899. Thus, the Stock Exchange at Bombay was consolidated.
Other Leading Cities in Stock Market Operations
Ahmedabad gained importance next to Bombay with respect to cotton textile Industry. After 1880 many mills originated from Ahmedabad and rapidly forged ahead. As new mils were floated the need for a Stock Exchange at Ahmedabad was realised and in 1894 the brokers formed “The Ahmedabad Share and Stock Brokers Association”.
What the Cotton textile Industry was Bombay and Ahmedabad the Jute Industry was to Calcutta. Also Tea and Coal Industries were the other major industrial groups in Calcutta. After the share Mania in 1861-65, in the 1870’s there was a sharp boom in Jute Shares, which was followed by a boom in tea shares in the 1880’s and 1890’s and Coal boom between 1904 and 1908. On June 1908, some leading Brokers formed “The Calcutta Stock Exchange Association”. In The beginning of the twentieth century. The industrial revolution was in the way in India with the Swadeshi Movement, and with the Inauguration of the Tata Iron and Steel Company Limited in 1907. An Important stage in industrial advancement under Indian Enterprise was reached.
Indian Cotton and jute textiles, steel, sugar, paper and flour mills and all companies generally enjoyed phenomenal prosperity. Due to the first world war.
In 1920, the then demure city of madras had the maiden thrill of Stock Exchange functioning in its midst. Under the name and style of the madras stock exchange with 100 members however when boom faded. The number of members stood reduced from 100 to 3 by 1923 and so it went out of existence.
In 1935 the stock market activity improved. Especially in South India where there was a rapid increase in the number of textile mills and many plantation companies were floated in 1937. A stock exchange was once again organized in Madras – Madras Stock Exchange Association (Pvt.) Limited (in 1957 the name was changed to madras stock exchange limited).
MEANING:
Capital market which deals in long term funds however some times these terms are used broadly to include markets for both short and long term funds.
The capital markets have three important components namely the suppliers of loanable funds the borrowers and the intermediaries who deal with the lenders on the one hand and the borrowers on the other. In developing countries like India the capital markets or sectors. The unorganised bankers and moneylenders are important constituents of the unorganised market. The co-operative institutions occupy a some what intermediate position between the organised and unorganised sectors of the capital market.
The Indian capital market is the market for long term loanable funds as distinct from money market which deals in short term funds. It refers to all the facilities and institutional arrangements for borrowing and lending “term funds” – medium term and long term funds. In principle capital market loans are used by industries mainly for fixed investment. It does not deal in capital goods but is concerned with raising money capital for purpose of investment.
NATURE OF THE INDIAN CAPITAL MARKET:
Like the money the Indian capital market also consists of an organised sector and an unorganised sector. In the organised market the demand for capital mostly from corporate enterprises and government and semi-government institutions and the supply comes from household savings institutional investor like banks investment trusts. Insurance companies finance corporations government and international financing agencies.
The unorganised market consists mostly of the indigenous bankers and moneylenders or the supply side. While in the organised sector the demand for funds is mostly for productive investment a large part of the demand for funds in the unorganised market is for consumption purpose in fact many purposes for which funds are very difficult to get from the organised market the existence of multiplicity of interest rates exorbitant rates of interest and lack of uniformity in their business dealings.
While the activities of the organised market are subject to a number of government controls the unorganised sector is by and large outside effective government control.
The organised sector has been subjected to increasing institutionalization. A large chunk of the sector is accounted for by the public sector financial institutions and there is government control over other segments of the organised capital market.
GROWTH OF INDIAN CAPITAL MARKET:
Indian Capital Market before independence:
Indian capital market was hardly existent in the pre-independence times. Agriculture was the mainstay of economy but there was hardly and long term lending to agricultural sector. Similarly the growth of industrial securities market was very much hampered since there very few companies and the number of securities traded in the stock exchanges was even smaller Indian capital market was dominated by gilt edged market for government and semi-government securities individual investors were very few in numbers and that too were no specialised intermediaries and agencies to mobilise the savings of the public and channelise them to investment.
Indian Capital Market after Independence:
Since independence, the India capital market has made widespread growth in all the areas as reflected by increased volume of savings and investments. In 1951, the number of Joint Stock Companies (which is a very important indicator of the growth of capital market) was 28.500. Both public limited and private limited companies with a paid up capital of Rs.775 crores, which in 1990 stood at 50,000 companies with a paid up Rs.20,000 been phenomenal in recent years. In keeping with the accelerated tempo of development of the Indian economy under the impetus of the five year plans.
IMPORTANCE OF CAPITAL MARKET :
The pace of economic development is conditioned, among things by the rated of long term capital formation, and capital formation is conditioned by the mobilization. Augmentation and channelisation of investible funds. The capital market serves a very useful purpose by pooling the capital resources of investible funds. The capital market serves a very useful purpose by polling the capital resource of the company and making them available to the enterprising investors. Well-developed capital markets augment resources by attracting and lending funds on global scale. The euro-currency and Eurobond markets are international finance markets in terms of both the supply and demand for funds.
The increase in the size of the industrial units and business corporations due to technological development, economies of scale and other factors has created a situation where in the capital at the disposal of one or few individual is quite insufficient to meet the investment demands. A developed capital market can mobilise and pool together even the small and scattered savings and augment the availability of investible funds. While the rapid grown of capital markets, the growth of Joint Stock business has in its turn encouraged the development of capital markets.
A developed capital market provides a number of profitable investment opportunities for the small savers.
CAPITAL MARKET REFORMS:
The number of stock exchanges has increased and the capital market has expanded substantially. However, the functioning of the stock exchanges were characterized by many shortcomings with long delays. Lack of transparency in procedure and vulnerability to price rigging and insider trading. A number of measures have been taken to overcome these problems.
The objectives of measure, broadly have been to
Provide for effective control of the stock exchange operations.
Increase the information flow and disclosures so as to enhance the transparency.
Protect the interests of investors.
Check insider trading.
Improve the operational efficiency of the stock exchanges.
Promote healthy development of the capital market.
Important measure of reform and development include the free pricing of capita issues. Book building mechanism, electronic trading, measures to widen and deepen the capita market, improvement in the trading. Clearing settlement systems, Promotion of dematerialization. Measures to reduce counter-party risk. Circuit breakers / price bands, measures to increase information flow and to enhance the transparency of the companies, and ushering in of fair trading practices including prohibition of insider trading. These measures have had some positive impact on the volatility, liquidity and transaction cost.
On other hand process of capital market reforms has been initiated since 1991-92 in the interest of healthy capital market development some of the significant reforms carried out are.
General Reforms:
Capital issue (control) Act. 1947 repealed and the office of the control over price and premium of shares removed companies are know free to approach capital market without prior governments permission subject to getting clearance by SEBI.
Through a notification issued under the Securities Contract (regulation) Act. 1956 the power of regulate stock exchange was delegated to SEBI. This includes recognition, rules articles voting right delivery contracts stock exchange nomination of public representatives.
Over the counter exchange of India (OTCE) and the national stock exchange of India with nationwide stock trading and electronic display clearing and settlement facilities commenced operations.
Foreign institutional investors (FIIS) allowed access to Indian capital markets on registration with SEBI.
Investment norms for NRIs liberalized so that NRIs and overseas corporate bodies can buy shares and debentures without prior permission of RBI
Following are the Primary Reforms:
Merchant banking brought under SEBI regulatory framework and a code of conduct issued.
The Banking to the issue brought under purview of SEBI for investor’s protection.
The due diligence certificate by lead managers regarding disclosures made in the offer document, has been made a part of the document itself for better accountability and transparency on the part of the lead managers.
The stock exchanges required to ensure that the companies concerned have a valid acknowledgement card issued by SEBI. SEBI votes the document to ensure that all disclosures have been made by the company in the offer document, at the time the company applies for listing of its securities to the stick exchange.
To reduce cost of issue, underwriting by issue made optional, subject to the condition that if an issue was not underwritten and was not able to collect 90% of the amount colleted would be refunded to investors.
SEBI gave up vetting of public issue offer documents SEBI’s comments of offer document. If any will be communicated with 21 days of filing, as is the case with rights issues.
Corporate advertisements, between the date of issue of acknowledgement card and the date of closure of the issue have been allowed. Subject to specific conditions which include the disclosure of risk factors.
Following are the secondary market reforms:
Investment norms for NRIs liberalized so that NRIs and overseas corporate bodies can buy shares and debentures without prior permission of RBI.
Renewal of transactions in B group securities prohibited so that transactions could be settled within 7 days.
SEBI introduced regulations governing substantial acquisition of shares and takeovers and lays down the conditions under which disclosures and mandatory public offers are to be made to the shareholders.
The Depositaries Act 1996, allows decartelization (and dematerialization) of securities in deposits though electronic book entry.
Stock Exchange asked to modify the listing agreement to provide for the payment of interest by companies to investors from 30th day closer of public issue.
Several restrictions, including limits on the side of issues proposed to be listed on OTCE removed, and listing criteria for OTCE, relaxed besides. OTCE permitted to move to a 5 day accounting period settlement.
A stock lending scheme has been introduced Stock lending has been approved in which short sellers could borrow securities through an intermediary before making such sales the approved intermediary should have a minimum net worth of Rs 50 crore.
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