Introduction to the Indian Capital Market
The exam tests the market's plumbing: who regulates what, how a security moves from issuance to settlement, and which instrument does which job. Most questions are definitional, but they turn on precise distinctions.
Regulators and statutes
- SEBI (created 1988, statutory under the SEBI Act, 1992) regulates the securities market; RBI covers money, credit and currency; IRDAI insurance; PFRDA pensions.
- The Companies Act, 2013 governs companies; the Securities Contracts (Regulation) Act, 1956 governs contracts in securities; the Depositories Act, 1996 enables dematerialisation.
- BSE (1875) and NSE (1992) are demutualised, screen-based, order-driven exchanges; equities settle on T+1.
Primary and secondary markets
- The primary market raises fresh capital: IPO, FPO, rights issue, preferential allotment, QIP.
- Two routes raise nothing for the company: an offer for sale (existing holders sell) and a bonus issue (reserves capitalised).
- The secondary market supplies liquidity and price discovery.
Instruments
Equity shares; preference shares including CCPS; debentures and bonds; ETFs; REITs and InvITs; Indian Depository Receipts; commercial paper (money market territory, RBI).
Worked example
An ₹800 crore public offer is split as ₹500 crore fresh issue plus ₹300 crore OFS. How much reaches the company? ₹500 crore - the OFS leg pays the selling shareholders. Both legs sit inside the same ICDR-compliant public issue and both count toward minimum public shareholding, which is why the distinction matters for the issuer's cash and for the seller's proceeds.
Traps
- Counting OFS or bonus proceeds as capital raised.
- Assuming SEBI regulates every financial product (insurance and pensions sit elsewhere).
- Confusing a stock split (face value change) with a bonus (free shares).
- Believing settlement is still T+2.