2

Role and Structure of Money Market

Definition
The money market is a component of the financial market where short-term
borrowing and lending take place. It includes a range of financial instruments, such
as treasury bills, commercial paper, and certificates of deposit, with maturities
typically ranging from overnight to just under a year. The money market provides a
venue for businesses to manage their short-term cash needs and for financial
institutions to maintain liquidity and meet short-term obligations
Role of Money Market
The money market plays a crucial role in the financial system by facilitating the
allocation of capital, efficient distribution of liquidity among financial institutions,
and the hedging of short-term risks
. It also contributes to the economic stability and development of a country by
providing short-term liquidity to governments, commercial banks, and other large
institutions. Additionally, the money market enables governments, banks, and other
large institutions to sell short-term securities to fund their cash flow needs and
allows individual investors to invest small amounts of money in a low-risk setting.
Furthermore, the money market is essential for the smooth functioning of the
financial economy, as it allows savers to lend money to those in need of short-term
loans and allocates capital towards productive uses. It provides a means for safe,
liquid, short-term investments for those with funds and offers borrowers access to
low-cost funds.
The money market's role encompasses the efficient allocation of capital, distribution
of liquidity, risk hedging, economic stability, and providing a means for safe, short-
term investments and access to low-cost funds.
Structure of Money Market
The structure of the money market is characterized by its focus on short-term, low-
risk, and highly liquid instruments. The money market is an organized exchange
market where participants can lend and borrow short-term, high-quality debt
securities with average maturities of one year or less. The instruments traded in the
money market include Treasury bills, certificates of deposit, commercial paper,
interbank loans, and money market mutual funds. The money market provides
 2

financing to local and international traders who are in urgent need of funds, and it
also makes funds available for other units of the economy, such as agriculture and
small-scale industries. The central bank is responsible for guiding the monetary
policy of a country and taking measures to anchor the entire term structure of
interest rates.
The money market's structure is characterized by its focus on short-term, low-risk,
and highly liquid instruments, and it is an organized exchange market where
participants can lend and borrow short-term, high-quality debt securities. The money
market provides financing to local and international traders, makes funds available
for other units of the economy, and is guided by the central bank's monetary policy.
Source
[1] https://www.newyorkfed.org/research/conference/2008/role_money_mkts
[2] https://corporatefinanceinstitute.com/resources/fixed-income/what-is-money-
market/
[3] https://www.imf.org/external/pubs/ft/fandd/2012/06/basics.htm
[4] https://www.investopedia.com/terms/m/moneymarket.asp
[5] https://www.5paisa.com/finschool/finance-dictionary/money-market/

Role and Structure of Capital Market

Definition
The capital market is a financial market where individuals and institutions trade
financial securities. It brings together buyers and sellers to trade stocks, bonds,
currencies, and other financial assets. The capital market includes the stock market
and the bond market, and its primary function is to facilitate the raising of long-term
finance, such as the purchase of shares/equities or long-term loans that are not
expected to be fully paid back for at least a year.
Role of Capital Market
The capital market plays a vital role in the economy by facilitating the allocation of
capital, the transfer of risk, and the provision of liquidity. It brings together buyers
and sellers to trade stocks, bonds, currencies, and other financial assets, enabling
savers and investors to channel their funds to the most productive and profitable
uses based on the information and prices reflected in the market. The capital market
also allows issuers and investors to diversify and hedge their risks by offering a
variety of securities with different characteristics and returns. Moreover, the capital
 2

market enables businesses, especially startups, to access essential funding through

avenues like IPOs, promoting innovation and job creation. Additionally, capital
markets facilitate large-scale projects and mergers, leading to economies of scale,
reducing costs, and benefiting both consumers and businesses. Capital markets also
empower individuals to grow and preserve wealth by investing in stocks, bonds, or
mutual funds, offering a hedge against inflation. Capital markets play a pivotal role
in shaping vibrant economies by allocating capital efficiently, transferring risk
appropriately, and providing liquidity and price discovery.
Structure of Capital Market
The structure of the capital market encompasses the primary and secondary
markets, where various financial instruments are traded. The primary market is where
new securities are issued and sold to investors, while the secondary market is where
existing securities are bought and sold among investors. The capital market
instruments include equity shares, debentures, bonds, and preference shares, which
are the main instruments traded in the market. The capital market is also composed
of suppliers of capital, such as banks and investors, and users of capital, including
businesses, governments, and individuals. Physically, the systems of the capital
market are hosted all over the world, with major financial centers like New York,
London, and Hong Kong serving as hubs for these activities. In summary, the
structure of the capital market comprises the primary and secondary markets,
various financial instruments, and the entities involved in the supply and demand of
capital.
Source
[1]https://www.stlouisfed.org/education/tools-for-enhancing-the-stock-market-game-invest-it-
forward/episode-1-understanding-capital-markets
2]https://www.stlouisfed.org/education/tools-for-enhancing-the-stock-market-game-
invest-it-forward/episode-1-understanding-capital-markets
[3] https://www.investopedia.com/terms/c/capitalmarkets.asp
[4]https://www.stlouisfed.org/education/tools-for-enhancing-the-stock-market-game-
invest-it-forward/episode-1-understanding-capital-markets
[5] https://www.fool.com/terms/c/capital-markets/

Difference between Money Market and Capital Market

The main differences between the money market and the capital market are:
 2

1. Duration: The money market deals with short-term financial instruments, typically
with maturities of less than a year, while the capital market focuses on long-term
financial instruments, such as stocks and bonds, which have maturities of more than
a year.
2. Risk: The money market is generally considered less risky than the capital market,
as it involves short-term borrowing and lending, while the capital market is riskier due
to its focus on long-term investments.
3. Liquidity: Money market instruments are more liquid than capital market
instruments, meaning they can be easily converted to cash.
4. Market Type: The money market is an informal market, while the capital market is
more structured and organized.
5. Purpose: The money market fulfils short-term liquidity needs, while the capital
market offers a platform for long-term investing.
The money market is characterized by short-term, low-risk, and highly liquid
instruments, while the capital market focuses on long-term, higher-risk, and less
liquid instruments. The money market serves to meet short-term credit needs, while
the capital market facilitates long-term investments and economic growth.
Source
[1]https://www.investopedia.com/articles/investing/052313/financial-markets-
capital-vs-money-markets.asp
[2] https://byjus.com/commerce/money-market-vs-capital-market/
[3] https://www.sofi.com/learn/content/money-market-vs-capital-market/
[4] https://cleartax.in/s/difference-between-money-market-and-capital-market
[5] https://time.com/personal-finance/article/money-markets-vs-capital-markets/

Regulations for Money market and Capital market in India

The Reserve Bank of India (RBI) is the primary regulator of both the money market
and capital market in India. The RBI has introduced various guidelines for money
market instruments, such as commercial papers and certificates of deposit, to ensure
transparency and protect investors. For instance, only commercial banks and select
all-India financial institutions can issue certificates of deposit, and only companies
with a tangible net worth of at least ₹4 crores can issue commercial papers. The
Securities and Exchange Board of India (SEBI) is responsible for regulating the
capital market in India. SEBI has introduced various guidelines for capital issues in
 2

the primary market, such as disclosure standards, minimum public shareholding

requirements, and pricing guidelines. SEBI also regulates the secondary market,
where securities are traded among investors. The RBI regulates the money market,
while SEBI regulates the capital market in India, and both have introduced various
guidelines to ensure transparency and protect investors.
Source
[1] http://www.jmpcollege.org/downloads/MODULE4.pdf
[2] https://fi.money/blog/posts/what-are-money-markets-and-who-regulates-them
[3]https://www.indiabudget.gov.in/budget_archive/
es96-97/4%20Capital%20and%20Money%20Markets.pdf
[4] https://scripbox.com/mf/money-market-vs-capital-market/
[5] https://byjus.com/commerce/money-market-vs-capital-market/

Instruments of Capital Market

Share
Definition
In the capital market, a share refers to a unit of equity ownership in the capital stock
of a corporation. It can also refer to units of mutual funds, limited partnerships, and
real estate investment trusts. Share capital refers to all of the shares of an enterprise.
The owner of shares in a company is a shareholder (or stockholder) of the
corporation. A share is an indivisible unit of capital, expressing the ownership
relationship between the company and the shareholder. The income received from
the ownership of shares is a dividend. There are different types of shares such as
equity shares, preference shares, deferred shares, redeemable shares, bonus shares,
right shares, and employee stock option plan shares.
Companies determining the price of their shares
The price of a company's shares is determined by supply and demand in the market.
Once a company goes public and its shares start trading on a stock exchange, its
share price is determined by the number of shares in circulation relative to the
demand for the stock. If there is a high demand for its shares, the price will increase,
and if the company's future growth potential looks dubious, sellers of the stock can
drive down its price. The more shares that a company has outstanding, the stock's
price fluctuates based on supply and demand. Other factors that can affect the price
of a company's shares include its future cash flows, level of debt, and liquidity.
 2

Several stock valuation models exist, such as the dividend discount model or Gordon
growth model, which can be used to price a company's shares at some sort of fair
value.
Factors that can influence the demand for a company's shares
Several factors can influence the demand for a company's shares. Some of the key
factors include:
1. Company news and performance: The way a company is performing can indicate
whether it is growing or declining. Company-specific factors, such as earnings and
profits, future estimated earnings, and news releases, can affect the share price.
2. Industry performance: Companies in the same industry often experience similar
trends, as market conditions generally affect the companies in the same sector. If an
industry is booming, share demand in that specific sector will often increase, and
share prices may rise.
3. Investor sentiment: Investor sentiment or confidence can cause the market to go
up or down, which can affect the value of a stock. Positive or negative news about a
company, its competitors, or the industry can influence investor sentiment.
4. Economic factors: Economic data, interest rates, and inflation can all impact the
demand for stocks. If the economy is doing well, it can create more demand for
stocks in anticipation of better earnings. Interest rate changes and inflation can also
affect the demand for stocks.
5. Company share issues, buybacks, and sellers: The number of shares in circulation
can affect the demand for a company's shares. If a company issues more shares,
the demand for existing shares may decrease, leading to a lower share price.
6. Market dynamics and economic conditions: Changes to economic policy, market
dynamics, and better-than-expected (or worse-than-expected) corporate results can
also impact the demand for stocks.
These factors can cause the demand for a company's shares to fluctuate, leading to
changes in the share price.
Source
[1] https://economictimes.indiatimes.com/definition/shares
[2] https://www.fool.com/investing/how-to-invest/stocks/how-are-stock-prices-determined/
[3]https://www.getsmarteraboutmoney.ca/learning-path/stocks/factors-that-can-
affect-stock-prices/
[4] https://time.com/personal-finance/article/how-are-stock-prices-determined/
 2

[5] https://www.investopedia.com/ask/answers/061615/how-companys-share-price-
determined.asp
Debentures
Definition
In corporate finance, a debenture is a type of debt instrument that is unsecured by collateral. It is
a medium- to long-term debt instrument used by large companies to borrow money at a fixed rate
of interest. Debentures are essentially bonds that are not backed by specific collateral, relying
instead on the creditworthiness and reputation of the issuer for support. They are used by
corporations and governments to raise capital or funds. If the issuing corporation were to go
bankrupt, holders of debentures rank higher in bankruptcy than do regular stockholders in
getting paid. The term "debenture" is more descriptive than definitive, and its exact and all-
encompassing definition has proved elusive. In the United States, debentures refer essentially to
unsecured bonds, while in other countries, the term may have different meanings, such as
referring to some form of secured debt instrument. Overall, the meaning and treatment of
debentures as a debt instrument can vary by country, and local usage of the term should be
considered to determine its specific meaning and treatment.

Different types of debentures

There are several types of debentures, each with its own unique characteristics and
features. Some of the most common types of debentures include:
1. Convertible Debentures: These debentures can be converted into equity shares of
the company at a later date, usually at the discretion of the debenture holder. The
conversion date, trigger date, and rights of the debenture holders are specified at the
time of issuance.
2. Non-Convertible Debentures: These debentures cannot be converted into equity
shares and are typically issued by companies that do not want to dilute their
ownership.
3. Registered Debentures: These debentures have all the details of the debenture
holders, such as addresses, names, and particulars, filed in a register kept by the
company. They can only be transferred by performing a normal transfer deed.
4. Unregistered Debentures: These debentures do not have a register of debenture
holders and can be transferred by way of delivery. The company does not maintain
any records of the debenture holders.
5. Redeemable Debentures: These debentures can be redeemed by the company
before maturity, usually at the discretion of the company. The redemption provisions
 2

are specified in the terms and conditions of the debenture.

6. Irredeemable Debentures: These debentures cannot be redeemed before maturity
and must be held until maturity.
7. Secured Debentures: These debentures are backed by collateral in the form of
property, securities, or other assets, which can be seized to repay creditors in case of
default.
8. Unsecured Debentures: These debentures have no collateralization and are
relatively riskier than secured debentures.
Each type of debenture serves different investment and financing purposes, catering
to the needs of both issuers and investors with varying financial goals and risk
appetites.
Difference between secured and unsecured debentures
Secured debentures are backed by specific assets or collateral, providing a higher
level of security to the debenture holders. In the event of default, the holders of
secured debentures have the right to recover the principal amount and interest by
claiming the assets that secure the debenture. On the other hand, unsecured
debentures are not backed by any collateral, making them riskier for the holders. Due
to the absence of collateral, unsecured debentures often feature a higher rate of
interest to compensate for the increased risk. In the United States, debentures refer
essentially to unsecured bonds, while in other countries, the term may have different
meanings, such as referring to some form of secured debt instrument. The treatment
and meaning of debentures can vary by country, and local usage of the term should
be considered to determine its specific meaning and treatment.
Source
[1] https://www.merriam-webster.com/dictionary/debenture
[2] https://www.bajajfinserv.in/what-is-debenture
[3] https://www.yieldstreet.com/blog/article/what-is-a-debenture/
[4]https://www.investopedia.com/ask/answers/110614/what-difference-between-
secured-and-unsecured-debts.asp
[5] https://www.law.cornell.edu/wex/debenture

Equity
Definition
Equity in the capital market refers to the value of an investor's stake in a company,
 2

represented by the value of shares an investor owns. It gives shareholders access to

potential capital gains and dividends and may also give them voting rights during
the elections for the board of directors or other matters. Shareholders' equity, book
value, and net asset value are often used to describe equity. The equity capital
market (ECM) is a subset of the broader capital market, where financial institutions
and companies interact to trade financial instruments and raise capital. It consists of
the primary market for private placements, initial public offerings (IPOs), and
warrants; and the secondary market, where existing shares are sold, as well as
futures, options, and other listed securities are traded.
Role of equity in the capital market
Equity plays a crucial role in the capital market in several ways. It allows companies
to raise funds by selling ownership stakes, enabling them to finance their operations
and growth without incurring debt. This can lead to a lower debt-to-equity ratio and
provide more flexibility in financing options. For investors, equity represents
ownership in a company and provides access to potential capital gains, dividends,
and voting rights. In the broader capital market, the equity capital market (ECM) is a
subset where financial institutions and companies interact to trade financial
instruments and raise capital through the issuance of stocks and other equity-related
securities. Therefore, equity serves as a vital mechanism for companies to raise
capital and for investors to participate in the ownership and growth of businesses.
Risks associated with investing in equity in the capital market
Investing in equity in the capital market carries several risks, including:
1. Market Risk: The value of stocks can rise or fall due to market forces, leading to
potential loss of investment.
2. Operational Risk: This is the risk of loss resulting from inadequate processes and
systems supporting the investment.
3. Funding Risk: The risk that investors are not able to provide their capital
commitments.
4. Liquidity Risk: The risk of being unable to sell an investment at a fair price and get
the money out when needed.
5. Political Risk: Events within a country can affect investments.
6. Currency Risk: Fluctuations in foreign exchange rates can impact the value of
investments.
7. Capital Risk: The potential of loss of part or all of an investment, including the risk
 2

of unrealized and realized losses.

Source
[1] https://economictimes.indiatimes.com/definition/equity
[2] https://www.td.com/ca/en/investing/direct-investing/articles/equity
[3] https://www.td.com/ca/en/investing/direct-investing/articles/equity
[4] https://economictimes.indiatimes.com/definition/equity
[5] https://www.investopedia.com/terms/c/capitalrisk.asp

Bond
Definition
Bonds are a type of security sold by governments and corporations to raise money
from investors. By buying a bond, an investor is lending money to the issuer, who
agrees to pay back the face value of the loan on a specific date and to pay periodic
interest payments along the way, usually twice a year. Bonds are a form of debt
security, like an IOU, and are traded in the bond market, which is the collective name
given to all trades and issues of debt securities. The bond market includes corporate,
government, and municipal bonds.
Types of Bonds
Corporate Bonds: Issued by companies to raise capital for business activities. They
can be investment-grade (lower risk and interest rates) or high-yield/junk bonds
(higher risk and interest rates) .
Government Bonds: Issued by national governments, known as sovereign bonds,
and considered low risk with stable returns. U.S. government bonds, for example,
include Treasury Bills (T-Bills), Treasury Notes (T-Notes), and Treasury Bonds (T-
Bonds).
Municipal Bonds: Issued by states, cities, and other local government entities, often
offering tax-exempt interest, which can be attractive to tax-conscious investors.
Agency Bonds: Issued by government-affiliated organizations, such as Fannie Mae
or Freddie Mac.
Convertible Bonds: These can be converted into a predetermined number of shares
of the issuing company's stock.
Emerging Market Bonds: Issued by governments and companies in developing
economies, offering growth opportunities but with higher risk.
Investors in the Indian bond market can choose from various types of government
bonds, such as:
 2

1. Fixed-rate bonds, offering a fixed interest rate throughout the tenure.

2. Floating rate bonds (FRBs), where the interest rate varies based on market
benchmarks.
3. Sovereign Gold Bonds (SGBs), which allow investment in gold in digital form.
4. Inflation-Indexed Bonds, where both the principal and interest are indexed to
inflation.
5. Savings bonds like the 7.75% GOI Savings Bond, which offers a fixed interest
rate.
Source
[1] https://www.investopedia.com/terms/b/bond.asp
[2] https://www.investopedia.com/terms/b/bondmarket.asp
[3] https://investor.vanguard.com/investor-resources-education/understanding-investment-
types/what-is-a-bond
[4] https://www.angelone.in/knowledge-center/share-market/bond-market

The Stock Market and Its Operation

The stock market is a collection of markets and exchanges where regular activities
of buying, selling, and issuance of shares of publicly-held companies take place.
Such financial activities are conducted through institutionalized formal exchanges or
over-the-counter (OTC) marketplaces which operate under a defined set of
regulations. Following are the ways how it operates:
- Primary Market: This is where securities are created. It's in this market that firms
sell (float) new stocks and bonds to the public for the first time, through initial public
offerings (IPOs). This is also known as the "new issue market" .
- Secondary Market: After the initial issuance, all trading of stocks occurs in the
secondary market, where one investor buys shares from another investor at the
prevailing market price or at whatever price both the buyer and seller agree upon. The
secondary market is what people are referring to when they talk about "the stock
market". It is important to note that the corporations whose securities are traded in
stock markets do not participate directly in these transactions.
- Stock Exchanges: These are the platforms where stocks and other financial
instruments, such as bonds and derivatives, are traded. The main objectives of stock
exchanges are to ensure fair dealing in securities traded on them and to protect
investors against fraud. India’s premier stock exchanges are the Bombay Stock
 2

Exchange (BSE) and the National Stock Exchange (NSE).

- Market Participants: Apart from the buyers and sellers, there are many
intermediaries involved in the stock market. These include brokers and market
makers who facilitate the ease of transactions by matching buyers with sellers.
Additionally, investment bankers represent companies in various capacities, such as
private companies that want to go public via an IPO or companies that are involved
in pending mergers and acquisitions.
- Regulatory Bodies: In India, the stock market is regulated by the Securities and
Exchange Board of India (SEBI), which acts to protect investors and ensure the
smooth functioning of the market. Similarly, in the United States, the Securities and
Exchange Commission (SEC) is the regulatory body that oversees and enforces
federal securities laws.
- Market Indices: These are used to track the performance of a portfolio of stocks
from a particular market and represent the performance and health of that market or
a sector within the market. Examples include the S&P 500, Dow Jones Industrial
Average (DJIA), and NASDAQ Composite in the United States. India has its own
major indices like the BSE SENSEX and NSE NIFTY.
- Trading Process: The process of buying and selling stocks typically involves
placing an order with a broker, choosing an order type, and managing and reviewing
your trades. This process has become highly efficient with electronic trading
systems, which match buyers with sellers.
- Market Performance: The performance of the stock market is a good indicator of
the economic health of a country. When stock markets perform well, it usually
reflects a booming economy and vice versa. However, the stock market can also
experience volatility based on various factors including economic data, corporate
earnings, and geopolitical events.
- Investment Strategies: Investors in the stock market can adopt various strategies,
such as buying and holding securities over a long term for growth, or trading stocks
in the short term to make quick profits. Each strategy carries its own set of risks and
rewards, and individuals must choose their approach based on their financial goals,
risk tolerance, and investment horizon.
The stock market is an essential component of the capital market, providing
companies with access to capital and investors with a slice of ownership in
companies and the potential to make gains based on the company's future
 2

performance. Understanding how the stock market works is fundamental for anyone
looking to invest in stocks.
Source
[1] https://www.investopedia.com/terms/s/stockmarket.asp
[2] https://www.investopedia.com/articles/investing/082614/how-stock-market-works.asp
[3] https://www.5paisa.com/finschool/course/stock-market-operations-course/introduction-to-
stock-market-operations/
#:~:text=1.1%20What%20is%20Stock%20Market%20Operations%3F%3F&text=Here%20one%20i
nvestor%20buys%20shares,the%20buyer%20and%20seller%20agree.&text=A%20stock%20may%
20be%20bought,and%20sellers%20meet%20each%20other.

The Stock Market Index

A stock market index is an index that measures the performance of a stock market or
a subset of a stock market. It helps investors compare current stock price levels with
past prices to calculate market trends and evaluate the overall health of the market.
Some primary criteria of an index include being investable and transparent, with
specified methods of construction. Stock market indices represent the performance
of the stock market of a single country and reflect investor sentiment on the state of
its economy.
Some examples of stock market indices include:
1. S&P 500 Index in the United States
2. Nikkei 225 in Japan
3. DAX in Germany
4. NIFTY 50 in India
5. FTSE 100 in the United Kingdom
These indices are often used as benchmarks to gauge the movement and
performance of the market. Investors cannot invest directly in an index, but they can
invest in index funds or exchange-traded funds (ETFs) that track the performance of
a specific index. These funds provide a low-cost way for investors to gain exposure
to a comprehensive index portfolio, gaining exposure to a specific market segment
of their choosing.
Source
[1] https://en.wikipedia.org/wiki/Stock_market_index
[2] https://www.spglobal.com/spdji/en/research-insights/index-literacy/what-is-an-
 2

index/
[3] https://www.investopedia.com/terms/i/index.asp
[4] https://www.forbes.com/advisor/investing/stock-market-index/
[5] https://www.investopedia.com/terms/m/marketindex.asp

The BSE Sensex

The BSE Sensex, also known as the S&P BSE Sensex or simply Sensex, is the
benchmark index of BSE Limited and is the most widely tracked equity gauge in
India. It is a free-float market-weighted stock market index of 30 well-established and
financially sound companies listed on the Bombay Stock Exchange (BSE). The
Sensex is managed and operated by a joint venture between BSE and S&P Dow
Jones Indices, a global index manager.
Key features of the BSE Sensex include:
- Constituents: The Sensex consists of 30 companies that are some of the largest
and most actively traded stocks in the Indian economy, representing various
industrial sectors.
- Market Capitalization: As of July 2023, the market capitalization of the Sensex is
₹301.7 lakh crore (US$3.8 trillion).
- Weighting Method: The Sensex uses a free-float market capitalization weighting
method, which means that the weight of each company in the index is proportional
to its market capitalization.
- History: The Sensex was launched on January 1, 1986, and its base value was
taken as 100 on April 1, 1979, with the base year as 1978-79.
- Related Indices: The Sensex is part of a family of indices, including the S&P BSE
Sensex 50, which measures the performance of the 50 largest and most liquid
companies in the Indian economy.
The BSE Sensex is widely followed by investors and financial institutions to gauge
the overall health of the Indian stock market and to make informed investment
decisions.
Top companies included in the BSE Sensex
The BSE Sensex, India's most widely tracked equity index, comprises 30 well-
established and financially sound companies listed on the Bombay Stock Exchange
(BSE). The list of 30 stocks is subject to revision by the BSE over time. The Sensex
companies represent various industrial sectors of the Indian economy. As of the
 2

latest available information, some of the top companies included in the BSE Sensex
are:
1. Tata Consultancy Services (TCS)- IT Services
2. HDFC Bank - Banking
3. Reliance Industries - Conglomerate
4. Hindustan Unilever - Consumer Goods
5. Infosys - IT Services
6. Housing Development Finance Corporation (HDFC) - Finance
7. ICICI Bank - Banking
8. Bajaj Finance - Finance
9. State Bank of India (SBI) - Banking
10. Kotak Mahindra Bank - Banking
This is not an exhaustive list, and the composition of the Sensex is subject to
periodic review and changes by the BSE to ensure that it represents the true picture
of the market.
Current value of the BSE Sensex
As of the latest available information, the current value of the BSE Sensex is
₹73,049.87. This value represents the performance of the 30 largest, most liquid, and
financially sound companies across key sectors of the Indian economy that are
listed on the Bombay Stock Exchange (BSE). The Sensex is a free-float market-
weighted stock market index, meaning that the weight of each company in the index
is proportional to its market capitalization.
Source
[1] https://economictimes.indiatimes.com/indices/sensex_30_companies
[2] https://en.wikipedia.org/wiki/BSE_SENSEX
[3] https://www.spglobal.com/spdji/en/indices/equity/sp-bse-sensex/
[4] https://economictimes.indiatimes.com/indices/sensex_30_companies
[5] https://www.equitymaster.com/india-markets/bse-replica.asp

The NSE Nifty

The NSE Nifty, also known as the Nifty 50, is the flagship benchmark index of the
National Stock Exchange of India (NSE). It is a well-diversified index comprising the
top 50 companies in terms of free-float market capitalization that are traded on the
NSE. The Nifty 50 is computed using a float-adjusted, market capitalization-weighted
 2

methodology, which tracks the behaviour of a portfolio of blue-chip companies, the

largest and most liquid Indian securities domiciled in India, and listed on the NSE.
Key features of the NSE Nifty include:
- Constituents: The Nifty 50 consists of 50 companies representing various sectors
of the Indian economy, such as financial services, energy, information technology,
automobile, and consumer goods.
- Market Capitalization: As of the latest available information, the Nifty 50 represents
about 59% of the free-float market capitalization of the stocks listed on the NSE.
- Weighting Method: The Nifty 50 uses a float-adjusted, market capitalization-
weighted methodology, which means that the weight of each company in the index
is proportional to its market capitalization.
- History: The Nifty 50 was launched on April 22, 1996, with a base value of 1,000,
counted from November 3, 1995.
- Related Indices: The Nifty 50 has several variants, such as Nifty Junior, which
tracks the performance of the next 50 largest and most liquid companies in the
Indian economy.
The NSE Nifty is widely followed by investors and financial institutions to gauge the
overall health of the Indian stock market and to make informed investment decisions.
Difference between the NSE Nifty and the BSE Sensex
The BSE Sensex and the NSE Nifty are both stock market indices in India, but they
differ in several aspects:
1. Number of Companies: The BSE Sensex comprises 30 companies, while the NSE
Nifty includes 50 companies.
2. Ownership and Management: The BSE Sensex is owned and managed by the
Bombay Stock Exchange (BSE), while the NSE Nifty is owned and managed by the
National Stock Exchange (NSE).
3. Base Period: The BSE Sensex has a base period of 1978-79, while the NSE Nifty
has a base period of 1995.
4. Weighting Method: The BSE Sensex uses a free-float market capitalization
weighting method, while the NSE Nifty uses a float-adjusted, market capitalization-
weighted methodology.
5. Sector Representation: The BSE Sensex represents companies across 13 different
sectors, while the NSE Nifty features companies across 24 different sectors.
6. Market Capitalization: The BSE Sensex represents about 59% of the free-float
 2

market capitalization of the stocks listed on the NSE, while the NSE Nifty represents
approximately 70% - 75% of the total market capitalization in India.
Both indices are widely followed by investors and financial institutions to gauge the
overall health of the Indian stock market and to make informed investment decisions.
The NSE Nifty, or Nifty 50, is a stock market index that represents the weighted
average of 50 of the largest Indian companies listed on the National Stock Exchange
(NSE)[4]. It is a well-diversified index that tracks the performance of the top 50
companies in terms of free-float market capitalization.
The Nifty is considered important for several reasons:
1. Benchmark for Investment: The Nifty serves as a benchmark for investment
portfolios and mutual fund schemes, allowing investors to compare their portfolio
performance with the overall market.
2. Reflects the Health of the Economy: The Nifty is designed to reflect the health of
the listed universe of Indian companies and the broader economy, making it an
essential tool for investors to gauge the overall market conditions.
3. Diversification: The Nifty covers 13 sectors of the Indian economy, offering
investment managers exposure to a wide range of industries and sectors.
4. Liquidity: The Nifty represents large-cap companies, which generally have a good
degree of liquidity and are traded in stock exchanges.
5. Trading Volume: The Nifty is the second most traded index option in the world
after the Nifty Bank.
The NSE Nifty is an essential tool for investors to track the performance of the Indian
stock market, assess the health of the economy, and make informed investment
decisions.
Source
[1] http://www.nseindia.com
[2] https://economictimes.indiatimes.com/indices/nifty_50_companies
[3] https://groww.in/p/difference-between-nifty-and-sensex
[4]https://www.indiainfoline.com/knowledge-center/share-market/difference-
between-nifty-and-sensex
[5] https://www.indiainfoline.com/knowledge-center/share-market/difference-between-nifty-
and-sensex

Role of SEBI
The Securities and Exchange Board of India (SEBI) plays a crucial role in the Indian
 2

financial system. Some of its key roles, objectives, and functions include:
1. Regulation and Development of the Securities Market: SEBI is responsible for
regulating and developing the securities market in India. It formulates regulations
and guidelines that govern various market participants, such as stock exchanges,
brokers, and listed companies, to promote fair and transparent practices.
2. Investor Protection: One of SEBI's primary objectives is to safeguard the interests
of investors in the securities market. It seeks to ensure that investors receive accurate
and timely information about the securities they invest in and works to create a safe
and transparent investment environment.
3. Prevention of Malpractices: SEBI aims to prevent malpractices in the securities
market, such as insider trading and fraudulent activities. It promotes fair trade
practices and works towards prohibiting fraudulent activities related to securities
markets.
4. Regulatory Functions: SEBI performs a multitude of regulatory functions to
achieve its overarching objectives of investor protection, market regulation, and the
development of the securities market. This includes establishing rules and
regulations for financial intermediaries.
5. Promotion of Fair and Proper Functioning: SEBI is responsible for ensuring the fair
and proper functioning of the securities market. It monitors the operations of stock
exchanges, market intermediaries, and other entities to maintain market integrity.
SEBI's role is to regulate and develop the securities market, protect the interests of
investors, prevent malpractices, and promote fair and transparent practices in the
Indian financial system.
Source
[1] https://blog.elearnmarkets.com/sebi-purpose-objective-functions-sebi/
[2] https://scripbox.com/pf/sebi/
[3] https://www.bajajfinserv.in/what-is-sebi
[4] https://byjus.com/commerce/sebi-objectives-and-functions/
[5] https://www.indmoney.com/articles/personal-finance/what-is-sebi-why-was-sebi-
established

Role of SEBI
The Securities and Exchange Board of India (SEBI) is a statutory regulatory body
established in 1992 by the Government of India. It is responsible for protecting
 2

investor interests and regulating the securities market, including the stock market
and mutual funds. The objectives of SEBI include investor protection, providing a
marketplace for issuers to raise funds, and ensuring the safety and accuracy of
information for investors. SEBI's structure comprises a board of nine members,
including a chairman, members from the Union Ministry of Finance, the Reserve
Bank of India, and members appointed by the Central Government of India. SEBI's
functions include regulating the Indian capital markets, monitoring and regulating
the stock market, protecting the interests of investors, and ensuring the fair and
proper functioning of the capital markets. SEBI also has the power to regulate stock
exchanges, access their records, conduct hearings, and regulate aspects of insider
trading.
Source
[1] https://byjus.com/commerce/sebi-objectives-and-functions/
[2] https://www.business-standard.com/about/what-is-sebi
[3] https://www.sebi.gov.in/department/human-resources-department-37/why-join-
sebi.html
[4] https://groww.in/p/sebi-securities-and-exchange-board-of-india
[5] https://blog.elearnmarkets.com/sebi-purpose-objective-functions-sebi/
Structure of SEBI
The Securities and Exchange Board of India (SEBI) has a hierarchical structure
consisting of the following 9 designated officers:
- The Chairman: Nominated by the Union Government of India.
- Two Members: Belonging to the Union Finance Ministry of India.
- One Member: Belonging to the Reserve Bank of India.
- Five Members: Nominated by the Union Government of India.
SEBI's structure is designed with a corporate framework, including a Board of
directors, Senior Management, Departmental Heads, and various key departments. It
comprises over 20 departments, each supervised by department heads and
administered by a hierarchical structure in general.
The Board of SEBI consists of nine members, including the Chairman, members from
the Union Ministry of Finance, and members appointed by the Central Government of
India.
Source
[1] https://www.geeksforgeeks.org/sebi-objectives-structure-and-functions/
 2

[2] https://byjus.com/commerce/sebi-objectives-and-functions/
[3] https://groww.in/p/sebi-securities-and-exchange-board-of-india
[4] https://www.5paisa.com/stock-market-guide/generic/what-is-sebi
[5] https://www.business-standard.com/about/what-is-sebi

Impact of SEBI on Capital Market in India

The Securities and Exchange Board of India (SEBI) plays a pivotal role in the Indian
capital market, serving as the regulator for the securities market in India. Established
in 1988 and given statutory powers in 1992 following the SEBI Act, SEBI's primary
functions include protecting the interests of investors, promoting the development of
the securities market, and regulating the market to ensure its orderly functioning.
SEBI's impact on the capital market in India can be observed through various
functions:
- Investor Protection: SEBI has put in place regulations to protect investors from
fraudulent practices, insider trading, and other unfair trade practices. It also educates
and guides investors on safe investment practices.
- Market Regulation: SEBI regulates the activities of stock brokers, merchant brokers,
underwriters, portfolio managers, and investment advisers. It governs the process of
acquiring companies and the functioning of stock exchanges.
- Market Development: SEBI undertakes measures to develop the capital markets by
adopting a flexible approach, promoting the training of intermediaries, conducting
research, and publishing information that is beneficial to market participants.
- Handling Grievances: SEBI addresses investor grievances and has set up a system
for the redressal of complaints. It also monitors the activities of financial
intermediaries to ensure smooth and secure market transactions.
- Regulatory Powers: SEBI has the authority to grant licenses to brokers and dealers,
and it can ban those involved in fraudulent and unfair practices. It also has control
over company mergers, acquisitions, and takeovers to prevent the creation of
monopolies and ensure market development.
- Operational Improvements: SEBI has introduced various measures to protect
investors' interests, such as supervising the allotment process of shares to prevent
malpractices and increasing investors' trading times. It has also introduced an
automated complaints handling system and taken steps to eliminate price-rigging.
SEBI's regulatory guidelines are aimed at ensuring investor protection and creating a
 2

fair-trading environment. Since its establishment, SEBI has played an integral role in
making the stock market a safer place for investors and has been pivotal in
maintaining the confidence of both domestic and international participants in the
Indian capital market. Its continuous efforts to align disclosure requirements with
international standards and robust mechanisms have contributed to the growth and
stability of the Indian capital markets.
While SEBI has made significant contributions to the development and regulation of
the Indian capital market, it also faces certain limitations and challenges, such as
bureaucratic delays in approving new rules, the need for prior government approval
for certain actions, and the requirement for more staff to effectively regulate and
develop the market. Despite these challenges, SEBI's role in market supervision,
investor protection, and market development remains crucial for the health and
growth of the Indian capital market.
Source
[1] https://acadpubl.eu/hub/2018-119-17/1/69.pdf
[2] https://www.stockdaddy.in/blog/what-is-sebi-and-its-role-in-capital-market

IDRA and its Role in Financial Markets

IDRA, or the Insurance Development and Regulatory Authority, is the regulatory body
responsible for the oversight of the insurance sector in Bangladesh. It was
established under the Insurance Development and Regulatory Authority Act of 2010,
replacing the previous regulatory framework under the Insurance Act of 1938.
The roles and challenges of IDRA in developing the financial market, particularly the
insurance market in Bangladesh, include:
- Regulating Insurance Companies: IDRA regulates and supervises all insurance
companies operating in Bangladesh. It ensures that these companies follow the
stipulated regulations and maintain financial soundness.
- Product Approval: IDRA has the authority to approve insurance products. This
includes both life and non-life insurance policies. For example, various life insurance
policies have been approved after the formation of IDRA, ensuring that they meet the
required standards for the protection of policyholders.
- Preventing Money Laundering: IDRA cooperates with the Bangladesh Financial
Intelligence Unit (BFIU) to prevent money laundering and terrorist financing within the
insurance sector. It provides guidance to insurance companies on how to prevent
 2

these illegal activities [3][89].

- Implementing Technology: IDRA has initiated the use of a Unified Messaging
Platform (UMP) to bring the insurance sector under digitization and to monitor
premium income collections of insurers [3][89].
- Promoting Fair Practices: It strives to ensure fair dealings in the insurance sector,
prevent fraud, and address policyholder grievances. IDRA also works on improving
the rate at which the insurance industry grows in an organized manner.
- Developing the Insurance Sector: IDRA has been actively involved in organizing
insurance fairs to increase awareness among the public about insurance, and it has
launched various initiatives to develop the sector, such as the Bangladesh Insurance
Sector Development Project funded by the World Bank and the Bangladesh
Government.
- Setting Financial Standards: IDRA formulates rules and regulations to guide the
financial stability and investments of insurance companies. For instance, it monitors
the investment portfolio of insurance companies and works on formulating solvency
margin regulations.
- Training and Licenses: It issues circulars on agent training and has made it
mandatory that no insurance agent license will be issued without proper training.
This step is taken to improve the quality of insurance services.
- Financial Reporting: IDRA collects financial data from insurance companies to
analyse the performance of the industry, including total assets, gross written
premiums, and other financial statistics.
- Inspections and Penalties: It conducts onsite inspections to ensure compliance
with the insurance act and related circulars. When irregularities are found, IDRA can
impose fines or provide guidelines for correction.
Despite its efforts, IDRA faces several challenges, such as ensuring compliance with
international standards, adapting to technological advancements, coordinating with
other regulatory bodies, and managing the complexities of an evolving financial
market. Additionally, there is a need to increase investment in government securities
for the protection of policyholders and to control the excessive payment of
commissions in the insurance industry.
Source
[1]http://idra.portal.gov.bd/sites/default/files/files/idra.portal.gov.bd/annual_reports/
961c9387_5cd3_4996_b8bc_97e3bf55fead/a7bb1216b730eb575c3a4220412c812e.pdf
 2

[2] https://www.tbsnews.net/economy/idra-issue-regulatory-sandbox-guidelines-2023-686586