The capital market in India is a vital component of the country's financial system, playing a key role in economic development by channeling savings and investments into productive sectors.
The Indian capital market allows companies, governments, and other entities to raise long-term funds through the issuance of financial instruments such as stocks and bonds.
It has evolved significantly over the years and is regulated by various governing bodies to ensure transparency, efficiency, and fairness.
The Indian capital market allows companies, governments, and other entities to raise long-term funds through the issuance of financial instruments such as stocks and bonds.
It has evolved significantly over the years and is regulated by various governing bodies to ensure transparency, efficiency, and fairness.
Key Features of the Indian Capital Market
Market Segments
- Primary Market (New Issues Market): This market is where companies issue new securities for the first time to the public. Instruments like Initial Public Offerings (IPOs), Follow-on Public Offers (FPOs), and Rights Issues are common methods used to raise funds in this market.
- Secondary Market (Stock Market): In this market, previously issued securities are traded among investors. It provides liquidity to the securities issued in the primary market. The two major stock exchanges in India are:
- Bombay Stock Exchange (BSE): Established in 1875, it is one of the oldest stock exchanges in the world.
- National Stock Exchange (NSE): Established in 1992, it is the largest and most technologically advanced stock exchange in India.
Types of Securities Traded
Regulation
Participants
Market Instruments
Key Features
Growth and Development
The Indian capital market has witnessed tremendous growth and transformation over the last few decades:
- The 1991 economic reforms and subsequent liberalization policies played a key role in modernizing the capital markets.
- The introduction of electronic trading and dematerialization of shares (using demat accounts) in the 1990s significantly improved efficiency and transparency.
- The derivatives market grew rapidly after the introduction of futures and options in the early 2000s.
Importance of Capital Markets in India
- Economic Growth: By mobilizing savings and channeling them into productive investments, the capital market fuels economic growth and industrial development.
- Infrastructure Development: It supports long-term investments in infrastructure and other capital-intensive sectors.
- Foreign Investment: The capital market attracts foreign investment, especially through Foreign Institutional Investors (FIIs) and Foreign Direct Investment (FDI), contributing to India’s economic growth.
- Employment Generation: The capital market boosts employment by providing capital to businesses, which in turn expand and create jobs.
Challenges
