Market is a placewhere buyers and sellers meet.Capital Markets are the financial markets where the buyers and sellers trade stocks, bonds, currencies and different financial instruments. Capital markets are the place where funds are exchanged between the suppliers like banks and investors to those who need it like businesses, governments and individuals. They assist entrepreneurs and help small businesses grow into big ones. Additionally, they provide opportunities for regular people to invest and save for their future. Capital markets are key engines of economic growth and wealth creation in any economy. Capital markets are used to sell different financial instruments like equity shares, preference shares, debentures, bonds etc.

Capital markets are divided into two categories i) Primary Market and ii) Secondary Market.

Primary Market: When a company publicly sells new stocks or bonds for the first time such as in an initial public offering (IPO), it does so in the primary capital market. This market is sometimes called the new issue market. The new money is converted into debt or shares of the company. Debt or stocks are locked in until they are sold on a secondary market, repurchased by the company, or mature. 

Primary capital markets trade two major financial instruments: equities (stocks) and debt. 

Now the shares of these public companies will be listed in a stock exchange.

Secondary Market: Investors trade old debt or stocks on the secondary capital market. It differs from the primary market because the debt has already been issued here.

Investors trade stock in the secondary capital markets through exchanges such as the Bombay Stock Exchange, National Stock Exchange. A stock exchange also allows people to sell the old stock if they no longer want it, which results in the ‘liquidation’ of these stocks. Thus, the seller now has cash rather than an asset.

Capital Market plays a pivotal role for the functioning of modern economy because here the money moves from the persons who have it to those who need to utilize it in a productive manner. If the corporate can utilize the resources in an optimum manner naturally the economy will flourish. How the economy will flourish let me discuss it. Suppose a company utilizes it resources properly and generates a huge amount of profit. Now the company will either go for expansion or for diversification. In both the cases company needs personnel so employment generates. As more people get employed naturally demand in the economy will also generate. When demand will generate naturally more number of businesses will evolve in the economy which will again create fresh employment in this way the economy of a country will boost.

Abhijit Pal

Assistant Professor, Dinabandhu Andrews Institute of Technology and Management