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Unit 1: Introduction to Capital Market

S&P CNX 500: Th4e S&P CNX 500 is India’s first broad based benchmark of the Indian capital Notes
market. The S&P CNX 500 represents about 92.27% of the Free Float Market Capitalization and
about 81.52% of the total turnover on the NSE as on December 31, 2010. The S&P CNX 500
companies are disaggregated into 72 industry indices viz. S&P CNX Industry Indices. Industry
weightage in the index reflect the industry weightage in the market. For e.g. if the banking
sector has a 5% weightage in the universe of stocks traded on NSE, banking stocks in the index
would also have an approx. representation of 5% in the index.

1.3.3 Role and Stock Exchange Functions

The history of stock exchanges in foreign countries as well as India shows that the development
of joint stock enterprise would never have reached its present stage but for the facilities which
the stock exchanges provided for dealing the securities. Stock exchanges have a very important
function to fulfil in the country's economy. In Union of India vs Allied International Products
Ltd. (1971) [41 Comp Cas 127 (SC): (1970) 3 SCC 1941], the Supreme Court of India has enunciated
the role of the stock exchanges in these words.
A Stock Exchange fulfils a vital function in the economic development of nation: its main
function 'liquefy' capital, enabling a person who was invested money in, say a factory or a
railway, to convert it into by disposing off his shares in the enterprise to someone else. Investment
in joint stock companies is attach the public, because the value of the shares is announced day
after day in the stock exchanges, and shares quantity on the exchanges are capable of almost
immediate conversion into money. In modern days, a company stock has little chance of inducing
the public to subscribe to its shares. It needs permission from reputed exchanges for securing
quotation of their shares and the management of a company is anxious to inform the investing
public that the shares in company will be quoted on the stock exchange.

The stock exchange is really an essential pillar of the private sector corporate economy. It
discharges essential functions in the process of capital formation and in raising resources for the
corporate sector.
First, the stock exchange provides a market place for purchase and sale of securities viz., shares,
bonds, debentures etc. It, therefore, ensures the free transferability of securities which is the
essential basis for the stock enterprise system. The private sector economy cannot function
without the assurance provided by the exchange to the owners of shares and bonds that they can
be sold in the market at any time. At the same time, those who with to invest their surplus funds
in securities for long-term capital appreciation or for speculative can also buy scripts of their
choice in the market.
Secondly, the stock exchange provides the linkage between the savings in the household sector
and investment in corporate economy. It mobilizes savings, channelises them as securities into
those enterprises which are favoured by the investors on the basis of such criteria as future
growth prospects, good returns appreciation of capital. The importance of this function has
remained undiminished in spite of the prevalence in the Indian Scenario, of such interventionist
factors as industrial licensing, provisions of credit to private sector by public sector development
banks, price controls and foreign exchange regulations. The stock exchanges discharge functions
by laying down a number of regulations which have to be complied with while making public
issues offering at least the prescribed of capital to the public, keeping the subscription list open
for a minimum period three days, making provisions for receiving applications at least at the
centres where they are recognized. Such exchanges allot the shares against applications on a fair
and unconditional basis with the weightage to be given to the applications in lower categories,
particularly those applying for shares worth 500 or 1,000. Members of stock exchanges also
assist in the floatation of new issues by acting as managing brokers of new issues. In that
capacity, they, inter alia, try to sell these issues to investors spread all over the country. They

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