Capital Market

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Capital Market in India

The capital market has 3 components - the equity market, the debt market, and the derivative market. It consists of all those connected with issuing and trading in equity shares and also medium and long term debt instruments, namely, bonds and debentures. It is well accepted that tenures less than one year are considered as short term; while tenures more than one year and up to three years may be taken as medium term while more than three years can be considered as long term.

Both equity and debt market have 2 segments - the primary market dealing with new issues of equity and debt instruments and the secondary market which facilitates trading in equity and debt instruments thereby imparting liquidity to the instruments and making it possible for people with different liquidity preferences to participate in the market.

The capital market operations are regulated by the Securities and Exchange Board of India [SEBI]

Primary Market

The primary market provides a channel for sale of new securities. This market provides opportunity to issuers of securities, the government as well as corporate, to raise resources to meet their requirements of investments and/or discharge their obligations.

They may issue securities at face value, discount, or premium. They may also issue the securities in the domestic market and/or the international market.

Different kinds of issues:

1. Initial Public Offering [IPO] - An initial public offering is when an unlisted company makes either a fresh issue of securities of an offer for sale of its existing securities or both for the first time to the public.

2. Further Issue - A follow on public offering is known as further issue. This is offered through an offer document when an already listed organization makes either a fresh issue of securities to the public or an offer for sale to the public.

3. Rights Issue - Here, a listed organization proposes to issue fresh securities to its existing shareholders...