Capital Market

Capital market constitutes an important part of the financial market. It relates to those markets from where government, households, firms and industries secure long-term capital needs through the use of a wide variety of long-term financial instrument and other securities. It is the market for those financial instruments that are brought and sold with maturities greater than one year. Thus, capital markets are for longer-term debt instruments and stocks. Capital market securities include such marketable debt securities with maturities of a year or more and equity securities. Most of associated markets come under the scope of capital market.
In fact, capital market deals with longer-term and relatively riskier securities. Treasury bonds are an example of capital market just as Treasury Bills are an example of money market. All those who need longer-term funds depend on capital market. As for instance, government goes very often in capital market by selling long-term claims on their state-owned enterprises and industries issue shares and other securities to meet operating funds. Likewise, business and industries issue shares and other securities to raise funds from capital market. Households sell and buy long term claims to meet the very purpose of residential mortgage financing. Thus capital markets help in transfer of funds from savers to borrowers and secondary capital market allows investors and financial institutions to alter the liquidity, risk and portfolio composition in one way or the other.
The range of participants in capital market is much wider and participants create financial instruments that will fit the requirements of special cases- a kind of market for in tailor-made financial instruments. Developers called capital market as creative finance while others called it as finance facilitating and service center.
In the context of Nepal, capital market is slowly growing as well as improving. Growth of capital market has made it possible for the public limited companies to raise the long-term capital by issuing shares and other industrial bonds to the investing public. In this regard, SEBOPN has been active enough to promote capital market both in primary market and secondary markets transactions.
SEBON has allowed primary issues of Rs.2295.5 million in 2006/07 for 34 companies. Market capitalization has recorded Rs.186.3 billion in secondary market.
In fact, public confidence has grown very positive. There is a record of over subscription, as the shares floated by every company became a success. The projected results in prospectus continue to become a strong document of public belief. It means investing public attracted to invest in shares with the trust that promoters managing company will generate return sufficient to meet the expectations of investors. This is how capital market has taken a very optimistic outlook. But things change afterward as many of the manufacturing public limited companies like Jyoti Spinning Mill, Gorakhkali Rubber, Butal Dhago, Indreyani Soyabean, Kathmandu Distillery, etc.,could not flourish in a manner consistent with the needs of investors. But, there are also success cases relating to government banks, finance companies, insurance companies and few manufacturing and service industries.
On the whole, capital market is proving very significant to enhance the country's financial sector development. This is in coincidence to the government's financial sector reform policy supported by World Bank, Asian Development Bank, and other donors in addition to the vital role played by the regulating authorities like Nepal Rastra Bank, etc. At present, capital market is proving to be strong aspect of financial market in the country in view of continued revival of the public confidence for bringing significant rise in share price.
In Nepal, the growth of primary market and secondary market due to active involvement of issue managers, investment bankers and commission brokers brought a significant impact on capital market, as per available date in 2006/07. Primary issues have mobilized funds amounting to Rs.2753.7 million that consists of 34 companies. At the same time, secondary market has been created since the market capitalization has grown to Rs.186.3 billion raising NEPSE index to 683.95 points.

Role Of Capital Market
The nature and role of capital market is growing in scope and coverage in the financial system of every nation. It is mainly because capital market is much more diverse than those found in money market. It makes it possible for the transfer of funds to enhance economic growth and capital formation. As such the role of capital market is to channel savings for investment in order to enhance economic growth. To be specific, the role of the capital market can be better explain in order of following points;
Long-term productive and income generating assets
Capital market has important role to play by creating a market for capital fund. This helps in use of capital funds in business enterprises undertaking significant projects of greater national importance. As such, capital market provides a basis for enhancing investment in long-term productive and income generating assets.

Healthy economic activities
Capital market is an active agent of promoting healthy economic activities necessary for raising the living standard of the people. This is in coincidence to generate income for savings and there by investing in economic activities that helps in employment generation and the income creations of the people.
Profitability of the business enterprises
Capital market is the basic avenue for raising funds to use in promotion of business activities that ultimately enhance the profitability of the business enterprises. It is because of capital market business activities is in a position to finance big, project and expand the size of the business.
Viable mechanism for funding
Capital market has a significant impact on the funding of the business enterprises as it helps in the promotion, development and operation of such enterprises. It is because of capital market, business enterprises have assessed to funds at low cost without inconvenience.
However, in the context of Nepal, the capital market despite considered to be a viable mechanism (securities Exchange Center Limited, 1991) for company and industrial finance in the country is proving not effective. Even then, capital market has made it possible for number of companies to raise the required capital to finance the multi-million project managed under public limited companies.