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THEORY PART

Indian Capital Markets: An Overview


It all started in India, when twenty-two agents started the Bombay Stock Exchange (BSE). That was
way back in 1875. From then on, Indian markets have evolved continuously. Transparency is a
buzzword in the Indian business finance scene. Characterized by operational excellence, and conformity
to rules and regulations, the Indian financial market is a beacon of the economy. The Indian stock
market is probably the oldest in Asia. In 1994, the National Stock Exchange (NSE) was commenced.
NSEs objectives are to provide for speedy transactions. It also encouraged small investors.
The Company Act of 1956 governs the securities market in India. Having the powers to regulate
companies, the central government and the company law board abide by the companies act of 1956.
Powers such as auditing of accounting information, reviewing the business finance model and looking
into the other affairs of the company are given to the government. Investigators from the directorate of
investigation do the audits.
The Securities Contracts (Regulation) Act of 1956 and the Securities and Exchange Board of India
(SEBI) Act of 1992.are the other body of rules that govern the Indian capital markets. Control of stocks,
listings, contracts and a variety of other things are dealt by the former act. SEBI is concerned with the
growth of the securities and business finance market in India. It looks into various other things like
eligibility criteria for registration, developing the code of conduct, and so on. One of SEBIs main
activities is to protect the business finance interests of investors, by providing the facilities to safeguard
their wealth. In many ways, SEBI is instrumental in attracting investments, due to the safe nature in the
Indian business finance scene.
At a broad level, the Indian security market can be grouped into the savers and the spenders. The savers
are normal households, and the spenders are companies and the government. If the money of the savers
is put in financial securities, then spenders get money to operate, and in turn the savers get interest or
dividend to enjoy. Hence the security market is where the companies meet the savers.
The changes in economic scenario(after the liberalization) and the economic growth have raised the
interest of Indian as well as Foreign Institutional Investors(FIIs) in the Indian capital market. The
recent massive structural reforms on the economic and industry front in the form of de-licensing rupee
convertibility, tapping of foreign funds, allowing foreign investors to come to India, have resulted, on
one hand, in the quantum leap in activities/volume in the Indian capital market, and on the other hand
and more importantly, that the Indian capital market has undergone a metamorphosis in terms of
institutions, instruments, etc. The capital market in India is rightly termed as an emerging and promising
capital market. During last 20 years or so, the Indian capital market has witnessed growth in volume of
funds raised as well as of.

The buoyancy in the capital market has appeared as a result of increasing industrialisation, growing
awareness globalisation of the capital market, etc. Several financial institutions, financial instruments
and financial services have emerged as a result of economic liberalisation policy of the Government of
India.
The capital market has two interdependent segments: the primary market and the secondary market.
The primary market is the channel for creation of new securities. These securities are issued by public
limited companies or by government agencies In the primary market, the resources are mobilized either
through the public issue or through private placement route. It is a public issue if anybody and
everybody can subscribe for it, whereas if the issue is made available to a selected group of persons it is
termed as private placement. There are two major types of issuers of securities, the corporate entities
who issue mainly debt and equity instruments and the Government (Central as well as State) who issue
debt securities. These new securities issued in the primary market are traded in the secondary
market. The secondary market enables participants who hold securities to adjust their holdings in
response to changes in their assessment of risks and returns.

Foreign Institutional Investments (FIIs)
In present era of globalization no country or economy has been left untouched from international trade
and commerce. More access to international capital markets and foreign investments has helped
developing countries surmount their less developed capital markets. During the past few years, a flow of
capital has been seen from the developed part of the world to the less developed economies which has
led to decrease in the vulnerability of developing countries to financial crisis by reduction in their
external debt burden from 39% of gross national income in 1995 to 26% in 2006 and increase in foreign
exchange reserves to 92% of long term debt and 423% of more volatile short term debt in 2006. Over
the years same scenario has been witnessed in the Indian economy also. And thus, today most of the
market entities are interested in attracting foreign capital as it not only helps in creating liquidity for the
firms stock and the stock market but also leads to lowering of the cost of the capital for the firms and
allows them to compete more effectively in the global market place.