A capital market is a market for debt or equity where companies and governments can raise long-

term funds. The capital market consists primarily of the debt and equity markets.

Capital markets

Organised unorganised

Loan from Bank and other

Equity Markets
institutes

Equity shares of
Government Securities
Companies

Primary Markets Secondary markets

Securities and exchange board of India (SEBI) is the regulatory body of Indian capital markets
Unorganized Capital markets are completely insulated from any control of the RBI e.g. chit funds -
conducted between friends and relatives.
Organized Capital markets Includes institutions operating on given guidelines of RBI and other
statutory bodies like SEBI.

Equity Markets - Place where shares are purchased and sold

Financial Institutions - Main source of funds for firms which do not issue equity is finance from
financial institutions like banks

Equity Shares- Instruments used for raising long term corporate capital from the public
Government Securities- Instruments used for raising long term capital from the public. E.g.
Government Bonds

DIFFERENCE BETWEEN PRIMARY & SECONDARY MARKET 

In the primary market, securities are offered to public for subscription for the purpose of raising
capital or fund. For example -Reliance Power
 Secondary market is an equity trading avenue in which already existing issued securities are
traded amongst investors. For example-Reliance Industries, Tata Steel , etc
Capital Markets have played an important role in mobilizing funds to meet public and private
companies’ financial requirements.
Indian economy has compelled the world to change its viewpoints on India one of the reasons
being the Indian capital markets .

FEATURES OF CAPITAL MARKET

1. Channelisation Of Funds: The primal role of the capital market is to channelize investments from
investors who have surplus funds to the ones who are running a deficit. The capital market offers
both long term and overnight funds.
2. Trading Platform: The primary role of the capital market is to raise long-term funds for
governments, banks, and corporations while providing a platform for the trading of securities. Ready
& Continous Market: Fund-raising in the capital market is regulated by the performance of the stock
and bond markets within the capital market. The member organizations of the capital market may
issue stocks and bonds in order to raise funds. Investors can then invest in the capital market by
purchasing those stocks and bonds.
3. Regulation of the Capital Market: Every capital market in the world is monitored by financial
regulators and their respective governance organization. The purpose of such regulation is to protect
investors from fraud and deception. Financial regulatory bodies are also charged with minimizing
financial losses, issuing licenses to financial service providers, and enforcing applicable laws.
4. The Capital Market’s Influence on International Trade: Capital market investment is no longer
confined to the boundaries of a single nation. Today’s corporations and individuals are able, under
some regulation, to invest in the capital market of any country in the world. Investment in foreign
capital markets has caused substantial enhancement to the business of international trade.

Issues Involved in its growth

1. LIQUIDITY RISK: Many emerging markets are small and illiquid. Volumes of trade are quite
low. This kind of thin trading often leads to higher costs because large transactions have a significant
impact on the market. Thus, buyers of large blocks of shares may have to pay more to complete the
transaction, and sellers may receive a lower price.
2. POLITICAL RISK: In most of the developing countries the political systems are less stable
comparative to the developed countries. This scenario does not give the political system to
concentrate more on the capital market happenings and restrict any kind of malfunctions or
practices.

3. LIMITED DISCLOSURE AND INSUFFICIENT LEGAL INFRASTRUCTURE: As it is

already mentioned earlier that disclosure levels will not be up to the required extent in emerging
markets, the investors will not have a bright picture of the company in which they are investing, and
this may lead towards losses. INDIAN CAPITAL MARKET Financial regulators, such as the
Reserve Bank of India & Securities & Exchange Board of India {SEBI}, oversee the capital markets
in their designated jurisdictions to ensure that investors are protected against fraud, among other
duties.

4. CURRENCY RISK: The trade in capital markets will be highly impacted by the fluctuations
in the foreign exchange rates. The currencies of the emerging countries are not stable enough to
compete with those of the developed countries. This leads towards unexpected losses for the
investors in the markets.

5. CLEARANCE AND SETTLEMENT RISK: Inadequate settlement procedures still exist in

many of the emerging markets. They lead to high FAIL rates. A Fail occurs when a trade fails to
settle on the settlement date.

The Prime Minister of India Dr. Manmohan Singh, on the occasion of 125 years celebrations of
Bombay Stock Exchange {BSE} said, "Capital Markets are the prerequisites to the health of the
economy. Indian Capital Market has now begun to transform rapidly in the past five years to offer
world-class services to the investors".
A capital market can provide huge impetus to the development of any economy, so it can be said that
the growth and sustainability of capital markets plays an important role towards the development of
the economy. It is being observed that huge fluctuations are happening in Indian Capital Market in
recent past, but with the help of proper mechanism, which is being observed in India and after
examining various risk factors involved in capital markets, we attempt to say that the growth which
has been observed in Indian Capital Market in recent past is a realty, but not a myth. Right from the
independence, thanks to steps initiated by the Indian government especially after the post
liberalization era. A huge growth has been observed in the aspects of quality and quantity. Huge
increase has been observed in the volumes of trade. A steady and growing market size, reliable
business community, high levels of intellectual manpower, technological expertise and a dedicated
reform process that has brought about impressive economic liberalization, has made India a very
attractive destination for investments in capital markets