A Study of Capital Market in India

A STUDY OF CAPITAL MARKET IN INDIA
A STUDY OF
CAPITAL
MARKET IN
INDIA
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INTRODUCTION
AND
REASERCH DESIGN
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Chapter – I
_________________________________
INTRODUCTION AND RESEARCH DESIGN
1.1 Introduction
1.2 Objectives of the study
1.3 Hypothesis of the study
1.4 Significance of the Study
1.5 Statement of the Problem
1.6 Scope of the study
1.7 Methods of Data collection
1.8. Methods of Data Analysis
1.9 Limitations of study
1.10 Conclusion
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CHAPTER - I
INTRODUCTON AND RESEARCH DESIGN
1.1 INTRODUCTION
The capital market is a market securities, where companies and governments can raise
long-term funds. It is a market in which money is lent for periods longer than a year. A
nation’s capital market includes such financial institutions as banks, insurance
companies, and stock exchange that channel long- term investment funds to commercial
and industrial borrowers. Unlike the money market, on which lending is ordinary short
term, the capital market typically finances fixed investments like those in building and
machinery.
Capital market is a market for both debt and equity securities in India. It is the market
where business enterprises, including companies and governments, can raise long-term
funds. In other words, it can be said that the capital market is a market where the money
is provided to the borrowers for more than a year.
The Indian capital market includes both the stock or the share market and the bonds
market. Share or stock market is the market where equities are traded, whereas, the bond
market is the market where debt securities are traded.
On 31 August 1957, the BSE became the first stock exchange to be recognized by the
Indian Government under the Securities Contracts Regulation Act. Construction of the
present building, the Phiroze Jeejeebhoy Towers at Dalal Street, Fort area, began in the
late 1970s and was completed and occupied by the BSE in 1980.
A year later the Native Share and Stock Brokers' Association was formally inaugurated,
a precursor to the establishment in 1895 of the first stock exchange, which in 1899 moved
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to premises at Dalal Street, a name which ever since has been synonymous with the
Indian capital market.
A capital market is a financial market in which long-term debt (over a year) or equity-
backed securities are bought and sold,[1] in contrast to a money market where short-term
debt is bought and sold. Capital markets channel the wealth of savers to those who can
put it to long-term productive use, such as companies or governments making long-term
investments.[a] Financial regulators like Securities and Exchange Board of India (SEBI),
Bank of England (BoE) and the U.S. Securities and Exchange Commission (SEC)
oversee capital markets to protect investors against fraud, among other duties.
Transactions on capital markets are generally managed by entities within the financial
sector or the treasury departments of governments and corporations, but some can be
accessed directly by the public. As an example, in the United States, any American
citizen with an internet connection can create an account with Treasury Direct and use it
to buy bonds in the primary market, though sales to individuals form only a tiny fraction
of the total volume of bonds sold. Various private companies provide browser-based
platforms that allow individuals to buy shares and sometimes even bonds in the
secondary markets. There are many thousands of such systems, most serving only small
parts of the overall capital markets. Entities hosting the systems include stock exchanges,
investment banks, and government departments. Physically, the systems are hosted all
over the world, though they tend to be concentrated in financial centres like London, New
York, and Hong Kong.
A capital market can be either a primary market or a secondary market. In a primary

market, new stock or bond issues are sold to investors, often via a mechanism known as
underwriting. The main entities seeking to raise long-term funds on the primary capital
markets are governments (which may be municipal, local or national) and business
enterprises (companies). Governments issue only bonds, whereas companies often issue
both equity and bonds. The main entities purchasing the bonds or stock include pension
funds, hedge funds, sovereign wealth funds, and less commonly wealthy individuals and
investment banks trading on their own behalf. In the secondary market, existing securities
are sold and bought among investors or traders, usually on an exchange, over-the-
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counter, or elsewhere. The existence of secondary markets increases the willingness of

investors in primary markets, as they know they are likely to be able to swiftly cash out
their investments if the need arises.
A second important division falls between the stock markets (for equity securities, also
known as shares, where investors acquire ownership of companies) and the bond markets
(where investors become creditors).
The capital market provides the support to the system of capitalism of the country. The
Securities and Exchange Board of India (SEBI), along with the Reserve Bank of India are
the two regulatory authority for Indian securities market, to protect investors and improve
the microstructure of capital markets in India.
The Indian capital market is the market for long term loanable funds as distinct from
money market which deals in short-term funds. ADVERTISEMENTS: It refers to the
facilities and institutional arrangements for borrowing and lending 'term funds', medium
term and long term funds.
India has a fair share of the world economy and hence the capital markets or the share
markets of India form a considerable portion of the world economy. The capital market is
vital to the financial system.
The capital Markets are of two main types. The Primary markets and the secondary
markets. In a primary market, companies, governments or public sector institutions can raise
funds through bond issues. Alos Corporations can sell new stock through an initial public
offering (IPO) and raise money through that. Thus in the primary market, the party directly
buys shares of a company. The process of selling new shares to investors is called
underwriting.
In the Secondary Markets, the stocks, shares, and bonds etc. are bought and sold by the
customers. Examples of the secondary capital markets include the stock exchanges like
NSE, BSE etc. In these markets, using the technology of the current time, the shares, and
bonds etc. are sold and purchased by parties or people.
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Capital market is one of the most important segments of the Indian financial system. It is
the market available to the companies for meeting their requirements of the long term
funds. It refers to all the facilities and the institutional arrangements for borrowing and
lending funds. It means it is concerned with the raising of money capital for purposes of
making long term investments. The market consists of a number of individuals and
institutions including the government that canalise the supply and demand for long term
capital. The demand for long term capital comes predominately from private sector
manufacturing industries, agriculture sector, trade and the government agencies, while
the supply of funds for the capital market comes largely from individual and corporate
savings, insurance savings, banks, specialized financing agencies and the surplus of
governments.
Capital Markets for buying and selling equity and debt instruments. Capital markets channel
savings and investment between suppliers of capital such as retail investors and institutional
investors and users of capital like government, businesses and individuals.
The history of the capital market in India dates back to the eighteenth century when East
India Company securities were traded in the country. Until the end of the nineteenth century
securities trading was unorganized and the main trading centers were Bombay (now
Mumbai) and Calcutta (now Kolkata). Of the two, Bombay was the chief trading center
wherein bank shares were the major trading stock During the American Civil War (1860-
61). Bombay was an important source of supply for cotton. Hence, trading activities
flourished during the period, resulting in a boom in share prices. This boom, the first in the
history of the Indian capital market lasted for a half a decade. The bubble burst on July 1,
1865 when there was tremendous slump in share prices.
Trading was at that time limited to a dozen brokers; their trading place was under a banyan
tree in front of the Town hall in Bombay. These stock brokers organized informal
association in 1897 – Native Shares and Stock Brokers Association, Bombay. The Stock
exchanges in Calcutta ad Ahmedabad also industrial and trading centers, came up later. The
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Bombay Stock Exchange was recognized in May 1927 under the Bombay Securities
Contracts Control Act, 1925.
The capital market was not well organized and developed during the British rule because
the British government was not interested in the economic growth of the country. As a result
many foreign companies depended on the London capital market for funds rather than in the
Indian capital market.
In the post independence period also, the size the capital market remained small. During the
first and second five year plans, the government’s emphasis was on the development of the
agricultural sector and public sector undertakings. The public sector undertakings were
healthier than the private undertakings in terms of paid up capital but shares were not listed
on the stock exchanges. Moreover, the Controller of Capital Issues (CI) closely supervised
and controlled the timing, composition, interest rates pricing allotment and floatation consist
of new issues. These strict regulations de-motivated many companies from going public for
almost four and a half decades.
In the 1950s,Century textiles, Tata Steel, Bombay Dyeing, National Rayon, Kohinoor mills
were the favorite scripts of speculators. As speculation became rampant, the stock market
came to be known as Satta Bazaar. Despite speculation non-payment or defaults were very
frequent. The government enacted the Securities Contracts (regulation) Act in 1956 to
regulate stock markets. The Companies Act, 1956 was also enacted. The decade of the
1950s was also characterized by the establishment of a network for the development of
financial institutions and state financial corporations.
The 1960s was characterized by the wars and droughts in the country which led bearish
trends. These trends were aggravated by the ban in 1969 on forward trading and Badla
technically called contracts for clearing Badla provided a mechanism for carrying forward
positions as well as for borrowing funds. Financial institutions such as LIC and GIC helped
to revive the sentiment by emerging as the most important group of investors. The first
mutual fund of India, the Unit Trust of India (UTI) came into existence in 1964.
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In the 1970s Badla trading was resumed under the disguised forms of hand delivery
contracts – A group. This revived the market. However, the capital market received another
severe setback on July 6, 1974, when the government promulgated the Dividend Restriction
ordinance, restricting the payment of dividend by companies to 12 per cent of the face value
or one-third of the profit of the companies that can be distributed as computed under section
369 of the Companies Act, whichever was lower. This lead to a slump in market capitalism
at the BSE by about 20 per cent overnight and the stock market did not open for nearly a
fortnight. Later came buoyancy in the stock markets when the multinational companies
(MNCs) were forced to dilute their majority stocks in their Indian ventures in favor of the
Indian public under FERA 1973.
Several MNCs opted out of India. One hundred and twenty three MNCs offered shares
worth Rs 150 crore, creating 1.8 million shareholders within four years. The offer prices of
FERA shares were lower than their intrinsic worth. Hence, for the first the FERA dilution
created an equity cult in India. It was the spate of FERA issues that gave a real fillip to the
Indian stock markets. For the first time, many investors got an opportunity to invest in the
stocks of such MNCs as Colgate and Hindustan Liver Limited. Then in 1977, a little known
entrepreneur, Dhirubhai Ambani tapped the capital market. The scrip Reliance Textiles is
still a hot favorite and dominates trading at all stock exchanges.
The capital market structure is a layer of the financial system. ... While the money market
deals with short-term financing and its counterpart capital markets with the financing of
long-term in nature. The primary aim of the capital market is to channelize those who have
savings to those who need such savings.
The capital market is a sub-part of the financial market in India. It is a market where buyers
and sellers participate in the trading of financial securities. Financial securities are generally
of long-term investment nature. They may be shares of a company or bonds. Besides
trading, corporates issue bonds and shares for the first time in the capital market to raise
funds for their need. There is no physical place for such market. Instead, trading takes place
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electronically. A stock exchange facilitates such trading with various intermediaries like
brokers etc.
Based on the instruments life and duration of its trading, the capital market is of two types.
They are primary markets and secondary markets. The part of the capital market where
firms and corporations issue securities for the first time are a primary capital market. In
short, we call it the primary market. Likewise, the section of the capital market meant for
trading in such instruments is the secondary.
The capital market provides the support to the system of capitalism of the country. The
Securities and Exchange Board of India (SEBI), along with the Reserve Bank of India are
the two regulatory authority for Indian securities market, to protect investors and improve
the microstructure of capital markets in India. With the increased application of information
technology, the trading platforms of India has a fair share of the world economy and hence
the capital markets or the share markets of India form a considerable portion of the world
economy. The capital market is vital to the financial system.
The capital Markets are of two main types. The Primary markets and the secondary markets.
In a primary market, companies, governments or public sector institutions can raise funds
through bond issues. Alos, Corporations can sell new stock through an initial public offering
(IPO) and raise money through that. Thus in the primary market, the party directly buys
shares of a company. The process of selling new shares to investors is called underwriting.
In the Secondary Markets, the stocks, shares, and bonds etc. are bought and sold by the
customers. Examples of the secondary capital markets include the stock exchanges like
NSE, BSE etc. In these markets, using the technology of the current time, the shares, and
bonds etc. are sold and purchased by parties or people.stock exchanges are accessible from
anywhere in the country through their trading terminals.
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Capital market functions both in the formal and informal way. The formal capital market
functions primarily through stock exchanges. While the informal markets run through
“Dabba Trading” for secondary market trading in listed and unlisted stocks. At the same
time the “Grey Market” for primary market dealing in stocks IPO. Thus, “Dabba Trading”
and “Grey Market” are examples of the capital market in the informal segment.On the other
hand, stock exchanges in the organized or formal segment are the example of the formal
capital market. In India, the National Stock Exchange (NSE), the Bombay Stock Exchange
(BSE), the Multi-Commodity Exchange (MCX), the National Commodity and Derivative
Exchange (NCDEX), etc. are an example of the capital markets informal segment.
1.2 OBJECTIVE OF THE STUDY
1) To know the concept of capital market.
2) To know on customer due to capital market in India.
3) To study the financial position of capital market in India.
4) To give proper suggestions to following.
1.3 HYPOTHESIS OF THE STUDY
The following hypothesis have been set by the researcher for the study.
Hypothesis is a tentative proposition formulated for empirical testing. It is tentative, because

its veracity can be evaluated only after it has been tested empirically.
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1.4 SIGNIFICANT OF THE STUDY
Capital markets allow traders to buy and sell stocks and bonds, and enable businesses to
raise financial capital to grow. Businesses also have reduced risk and expenses in acquiring
financial capital because they have reliable markets where they can obtain funding. The
creation of local capital markets is enormously beneficial to governments attempting to
finance development internally. For investors and savers, capital markets can offer more
attractive investing opportunities—with better returns—than bank deposits, depending on
risk profile, liquidity needs, and other factors.
1.5 STATEMENT OF THE PROBLEM
 Inadequate Disclosure.
 Insider Trading.
 Price Manipulation.
 Over Subscription of Shares.
 Lack of Transparency.
 Investor's Grievance.
 Takeovers and Mergers.
 Problems related to Settlement Mechanism.
А spectacular growth in the Indian capital market has taken place in the recent years. The
capital mobilization is expected to increase with every five year plans. The number of
investors has also increased considerably during the last decade. Although capital formation
was considerable, а number of malpractices like manipulation of share prices, exploitation
of unwary investors by fly by night operators, insider trading, misleading information,
concentration of shareholding etc. have been witnessed.
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Тhе SEBI is expected to play а pivotal role in the capital market sо far it relates tо issue of
securities, prospectus, disclosure of information, listing, takeover etc. SEBI has issued а
number of guidelines to regulate the malpractices in the Indian capital market and provide
protection to the investors.
1.6 SCOPE OF THE STUDY
A capital market is a market for medium and long term funds. It includes all organisations,
institutions and instruments that provide long term and medium term funds. It does not
include the instruments or institutions which provides finance for short period (upto one
year).
 It is only with the help of capital market, long-term funds can be raised by
the business community
o Existing companies, because of their performance will be able to
expand their industries and also go in for diversification of business
due to the capital market
 Capital markets help individuals generate wealth and invest in their futures
o It provides opportunity for the public to invest their savings in
attractive securities which provide a higher return.
o Also, capital market provides an opportunity for the investing
publicto know the trend of different securities and the conditions
prevailing in the economy
 Further, capital markets provide the fuel for companies or entrepreneurs
to turn an idea or industry innovation into an actual company or
expansion for an existing firm
o This in turn creates jobs and spurs economic growth
1.7 METHODS OF DATA COLLECTION
1.7.1 Primary Data Collection
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1.7.2 Secondary Data Collection
Secondary data was used for the purpose of the study. Derived data was collected
from sources such as journals, internet, etc. Most of the research is the based on
internet and newspaper sources.
1.7.3 Sampling
For this study convenience sampling method is used to analysis of capital market
in India.
1.8 METHODS OF DATA ANALYSIS
In every capital market, there are certain metrics and statistics that cause a stock
price to move higher or lower. The process of conducing fundamental analysis
involves analyzing the financial statements and key ratios that help determine the
financial health of a company and thus its potential value.
Capital market analysts collect, interpret and communicate data for the
development of market reports and strategic recommendations on p articular
securities for their organizations. They also create financial models that
communicate market trends and factors that can affect a company's investments in
capital markets.
1.9 LIMITATION OF STUDY
The study was limited to capital market.
Study was limited to secondary sources.
Difficulty in getting source of data.
1. 10 CONCLUSION
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This chapter include basic introduction of project and research design.
THEROTICAL
BACKGROUND
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Chapter – II
_________________________________
THEROTICAL BACKGROUND
2.1 Introduction
2.2 Meaning
2.3 Nature or Features of Capital Market
2.4 Characteristics
2.5 Types of Capital Market
2.6 Advantages
2.7 Disadvantages
2.8 Importance
2.9 Role And Importance Of Capital Market In India
2.10 Conclusion
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CHAPTER – II
THEROTICAL BACKGROUND
2.1 INTODUCTION
Capital market is one of important instruments in term of investment because it

gives a big role to the wheel of economic sector. The developments of the
company rely to the capital market to raise their long-term funds. In the other
hand, the importance of capital market shows the development of the economics of
the country. A good growth of the capital market condition will increase the
economic growth of the country also. Based on the definition of capital market,
capital market is where government and industry can raise long-term capital and
investors can purchase and sell securities (Arnold, 2004).
The form of capital market is described as a fixed-income investment and equity

investment. According to Brown & Reilly (2009), a fixed-income investment is
having a contractually mandated payment schedule. Their investment contracts
promise specific payments at predetermined times, although the legal force behind
the promise varies and this affects their risks and required return. The instruments
that include in fixed-income investment are Treasury Bonds, Government Agency
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Bonds, Municipal Bonds, Corporate Bonds, and Preferred Stock. While equity
instrument is differ from fixed-income securities because their returns are not
contractual (Brown & Reilly, 2009). The instruments that include in equity
investment are Common Stock and other special equity instrument such as
Warrants, and Puts and Calls.
The fluctuation of capital market performance can be influenced by many factors.

Looking from the internal factors that come from within the company, the
fundamental factor of the company such as Price Earnings Ratio, Earning per
Share, Net Profit Margin, Price to Book Value and Systematic Risk have the
significant effect on Stock Price (Astuty, 2017). Besides, there are many other
factors from external company that can affect the capital market, one of factors
that can influence capital market is important news, both good and bad news.
Indian Capital Market before Independence
The Indian capital market was not properly developed before Independence. The
growth of the industrial securities market was very much hampered since there
were very few companies and the number of securities traded in the stock
exchanges was still smaller. Most of the British enterprises in India looked to the
London capital market for funds than to the Indian capital market. A large part of
the capital market consisted of the gilt-edged marker for government and semi-
government securities.
Indian Capital Market after Independence
Since Independence and particularly after 1951, the Indian capital market has been
broadening significantly and the volume of saving and investment has shown
steady improvement. All types of encouragement and tax relief exist in the country
to promote savings. Besides, many steps have been taken to protect the interests of
investors. A very important indicator of the growth of the capital market is the
growth of joint stock companies or corporate enterprises. In 1951 there were about
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28,500 companies both public limited and private limited companies with a paid -
up capital of Rs. 775 crores.
In the 1950s, Century Textiles, Tata Steel, Bombay Dyeing, National Rayon, and
Kohinoor Mills were the favorite scrips of speculators. As speculation became
rampant, the stock market came to know as the satta bazaar. The planning process
started in India in 1951, with importance being given to the formation of
institutions and markets. The Securities Contract Regulation Act 1956 became the
parent regulation after the Indian Contract Act 1872, a basic law to be followed by
security markets in India. To regulate the issue of share prices, Controller of
Capital Issues Act (CCI) was passed in 1947.
In the 1960-70s was characterized by was and droughts in the country with led to
bearish trends. These trends were aggravated on forward trading its call badla,
technically called ‘contracts for clearing’. Financial institutions such as LIC and
GIC helped revive the sentiment by emerging as the most important group of
investors. The markets have witnessed several golden times too. Retail investors
began participating in the stock markets in a small way with the dilution of the
FERA in 1978. Multinational companies, with operations in India, were forced to
reduce foreign share holding to below a certain percentage, which led to a
compulsory sale of shares or issuance of fresh stock. Indian investors, who applied
for these shares, encountered a real lottery because those were the days when the
CCI decided the price at which the shares could be issued. There was no free
pricing and their formula was very conservative.
Capital markets are composed of primary and secondary markets. The most
common capital markets are the stock market and the bond market. Capital
markets seek to improve transactional efficiencies. These markets bring suppliers
together with those seeking capital and provide a place where they can exchange
securities.
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The primary role of the capital market is to raise long-term funds for
Governments, banks, and corporations while providing a platform for the trading
of securities. The member organizations of the capital market may issue stocks and
bonds in order to raise funds.
2.2 MEANING
Capital refers to the financial resources that businesses can use to fund their
operations like cash, machinery, equipment and other resources. These are the
assets that allow the business to produce a product or service to sell to customers.
In the world of business, the term capital means anything a business owns that
contributes to building wealth. Sources of capital include: Financial assets that can
be liquidated like cash, cash equivalents, and marketable securities. Tangible
assets such as the machines and facilities used to make a product.
New Delhi, national capital of India. It is situated in the north -central part of the
country on the west bank of the Yamuna River, adjacent to and just south of Delhi
city (Old Delhi) and within the Delhi national capital territory.
Capital markets are where savings and investments are channeled between
suppliers people or institutions with capital to lend or invest and those in need.
Capital markets are composed of primary and secondary markets. The most
common capital markets are the stock market and the bond market.
Definition: Capital market is a market where buyers and sellers engage in trade of
financial securities like bonds, stocks, etc. The buying/selling is undertaken by
participants such as individuals and institutions.
Description: Capital markets help channelise surplus funds from savers to

institutions which then invest them into productive use. Generally, this market
trades mostly in long-term securities.
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Capital market consists of primary markets and secondary markets. Pri mary
markets deal with trade of new issues of stocks and other securities, whereas
secondary market deals with the exchange of existing or previously-issued
securities. Another important division in the capital market is made on the basis of
the nature of security traded, i.e. stock market and bond market.
Capital market, also known as the securities market is a market where the funds
from the investors are made available to the companies and government for the
development of the projects.
The Indian capital market includes both the stock or the share market and the
bonds market. Share or stock market is the market where equities are traded,
whereas, the bond market is the market where debt securities are traded.
2.3 NATURE OR FEATURES OF CAPITAL MARKET
1. Link between savers and investment opportunities.
2. Deals in long term investment.
3. Utilizes intermediaries.
4. Determinant of capital formation.
5. Government rules and regulations.
2.4 CHARACTERISTICS
Capital market is a market for medium and long term funds. It includes all the
organizations, institutions and instruments that provide long term and medium
term funds. It does not include the instruments or institutions which provide
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finance for short period (up to one year). The common instruments us ed in capital
market are shares, debentures, bonds, mutual funds, public deposits etc. Some of
the main features of a Capital Market are as follows:
Features
1. Link between Savers and Investment Opportunities:
Capital market is a crucial link between saving and investment process. The
capital market transfers money from savers to entrepreneurial borrowers.
2. Deals in Long Term Investment:
Capital market provides funds for long and medium term. It does not deal with
channelising saving for less than one year.
3. Utilises Intermediaries:
Capital market makes use of different intermediaries such as brokers,

underwriters, depositories etc. These intermediaries act as working organs of
capital market and are very important elements of capital market.
4. Determinant of Capital Formation:
The activities of capital market determine the rate of capital formation in an

economy. Capital market offers attractive opportunities to those who have surplus
funds so that they invest more and more in capital market and are encouraged to
save more for profitable opportunities.
5. Government Rules and Regulations:
The capital market operates freely but under the guidance of government policies.
These markets function within the framework of government rules and regulations,
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e.g., stock exchange works under the regulations of SEBI which is a government
body.
2.5 TYPES OF CAPITAL MARKET
Capital market is referred to as a place where saving and investments are done
between capital suppliers and those who are in need of capital. It is, therefore, a
place where various entities trade different financial instruments.
There are two types of capital market:
 Primary Market
 Secondary Market
Capital market is where both equity and debt instrument like equity shares,
preference shares, debentures, bonds, etc. are bought and sold.
The capital market is the best source of finance for companies. It offers a spectrum
of investment avenues to all investors which encourage capital creation.
Types of Capital Market
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 PRIMARY MARKET
The primary market is a new issue market; it solely deals with the issues of new
securities. A place where trading of securities is done for the first time. The main
objective is capital formation for government, institutions, companies, etc. also
known as Initial Public Offer (IPO). Now, let us have a look at the functions of
primary market:
1. Origination: Origination is referred to as examine, evaluate, and process

new project proposals in the primary market. It begins prior to an issue is
present in the market. It is done with the help of commercial bankers.
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2. Underwriting: For ensuring the success of new issue there is a need for
underwriting firms. These are the ones who guarantee minimum
subscription. In case, the issue remains unsold the underwriters have to
buy. But if the issues are completely subscribed then there will be no
liability left for them.
3. Distribution: For the success of issue, brokers and dealers are given job
distribution who directly contact with investors.
 SECONDARY MARKET
The secondary market is a place where trading takes place for existing securities.
It is known as stock exchange or stock market. Here the securities are bought and
sold by the investors. Now, let us have a look at the functions of secondary
market:
1. Regular information about the value of security

2. Offers liquidity to the investors for their assets
3. Continuous and active trading
4. Provide a Market Place
2.6 ADVANTAGES
Advantages of capital market:
 Capital market improves transnational efficiency.

 Capital market helps to flow money in-between so many investors
which means people who supply capital & people who borrow capital.
 Secondary capital market also helps to develop liquidity.
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 Securities like bonds traded in the capital market provide more interest
rates to investors than banks and shares offer dividends.
 Capital market helps increase your value of investment.
 Capital market’s Instruments comes with liquidity means you can easily
convert it into cash.
 When an investor invests into the shares under the capital market, the
investor will get ownership right of that particular share.
 Capital market also provides a wide range of investment types.
 By acquiring securities of the capital market provides surety while
getting loans from banks or financial institutes.
 While investing in the capital market, investors will receive some sort
of tax benefits.
 When an investor holds some securities from the capital market,
provides them long-term performance and benefits.+
2.7 DISADVANTAGES
Disadvantages of capital market:
 Capital market investment is very risky because of its very volatile at

the time of price variations.
 As the capital market is very fluctuating in terms of price, investment
won’t give you fixed income.
 As the capital market provides a wide range of investment which
creates confusion for investors and makes it difficult to invest without
professional advice.
 Purchasing and selling of capital market securities includes some
brokerage fees or commissions etc which eventually increases the cost
of transactions.+
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2.8 IMPORTANCE
Importance or Functions of Capital Market:
The capital market plays an important role in mobilizing saving and channel them
into productive investments for the development of commerce and industry. As
such, the capital market helps in capital formation and economic growth of the
country. We discuss below the importance of capital market.
1. Link between savers and investors:
The capital market acts as an important link between savers and investors.
The savers are lenders of funds while investors are borrowers of funds. The
savers who do not spend all their income are called “Surplus units” and the
investors/borrowers are known as “deficit units”. The capital market is the
transmission mechanism between surplus units and deficit units. It is a
conduit through which surplus units lend their surplus funds to deficit
units.
2. Basis for industrialization:
Capital market generates long term funds, which are essential for the
establishment of industries. Thus, capital market acts as a basis for
industrialization.
3. Accelerating the pace of growth:
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Easy and smooth availability of funds for medium and long period
encourages the entrepreneurs to take profitable ventures/businesses in the
field of trade, industry, commerce and even agriculture. It results in the all
round economic growth and accelerates the pace of economic development.
4. Generating liquidity:
Liquidity means convertibility into cash. Shares of the public companies

are transferable i.e., in case of financial requirements these shares can be
sold in the stock market and the cash can be obtained. This is how capital
market generates liquidity.
5. Increase the national income:
Funds flow into the capital market from individuals and financial
intermediaries which are absorbed by commerce, industry and government.
It thus facilitates the movement of stream of capital to be used more
productively and profitability to increase the national income.
6. Capital formation:
The capital market prides incentives to savers in the form of interest or

dividend to transfer their surplus fund into the deficit units who will invest
it in different businesses. The transfer of funds by the surplus units to the
deficit units leads to capital formation.
7. Productive investment:
The capital market provides a mechanism for those who have savings
transfer their savings to those who need funds for productive investments.
It diverts resources from wasteful and unproductive channels such as gold,
jewelry, conspicuous consumption, etc. to productive investments.
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8. Stabilization of the value of securities:
A well-developed capital market comprising expert banking and non-

banking intermediaries brings stability in the value of stocks and securities.
It does so by providing capital to the needy at reasonable interest rates and
helps in minimizing speculative activities.
9. Encourages economic growth:
The capital market encourages economic growth. The various institutions

which operate in the capital market give quantities and qualitative direction
to the flow of funds and bring rational allocation of resources. They do so
by converting financial assets into productive physical assets. This leads to
the development of commerce and industry through the private and public
sector, thereby encouraging/inducing economic growth.
2.9 Role And Importance Of Capital Market In India
The capital market has a crucial significance to capital formation. For a speedy
economic development, the adequate capital formation is necessary. The
significance of capital market in economic development is explained below:
 Mobilization Of Savings And Acceleration Of Capital Formation:
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In developing countries like India, the importance of capital market is self -evident.
In this market, various types of securities help to mobilize savings from various
sectors of the population. The twin features of reasonable return and liquidity in
stock exchange are definite incentives to the people to invest in securities. This
accelerates the capital formation in the country.
 Raising Long-Term Capital
The existence of a stock exchange enables companies to raise permanent capital.

The investors cannot commit their funds for a permanent period but companies
require funds permanently. The stock exchange resolves this dash of interests by
offering an opportunity to investors to buy or sell their securities, while permanent
capital with the company remains unaffected.
 Promotion Of Industrial Growth
The stock exchange is a central market through which resources are transferred to
the industrial sector of the economy. The existence of such an instit ution
encourages people to invest in productive channels. Thus it stimulates industrial
growth and economic development of the country by mobilizing funds for
investment in the corporate securities.
 Ready And Continuous Market
The stock exchange provides a central convenient place where buyers and sellers
can easily purchase and sell securities. Easy marketability makes an investment in
securities more liquid as compared to other assets.
 Technical Assistance
An important shortage faced by entrepreneurs in developing countries is technical

assistance. By offering advisory services relating to the preparation of feasibility
reports, identifying growth potential and training entrepreneurs in project
management, the financial intermediaries in capital market pla y an important role.
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 Reliable Guide To Performance
The capital market serves as a reliable guide to the performance and financial
position of corporate, and thereby promotes efficiency.
 Proper Channelization Of Funds
The prevailing market price of a security and relative yield are the guiding factors
for the people to channelize their funds in a particular company. This ensures
effective utilization of funds in the public interest.
 Provision Of Variety Of Services:
The financial institutions functioning in the capital market provide a variety of

services such as a grant of long-term and medium-term loans to entrepreneurs,
provision of underwriting facilities, assistance in the promotion of companies,
participation in equity capital, giving expert advice etc.
 Development Of Backward Areas
Capital Markets provide funds for projects in backward areas. This facilitates
economic development of backward areas. Long-term funds are also provided for
development projects in backward and rural areas.
 Foreign Capital
Capital markets make possible to generate foreign capital. Indian firms are able to
generate capital funds from overseas markets by way of bonds and other securities.
The government has liberalized Foreign Direct Investment (FDI) in the country.
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This not only brings in the foreign capital but also foreign technology which is
important for economic development of the country.
 Easy Liquidity
With the help of secondary market, investors can sell off their holdings and
convert them into liquid cash. Commercial banks also allow investors to withdraw
their deposits, as and when they are in need of funds.
2.10 CONCLUSION
This chapter include brief introduction of project. It include meaning, types,

advantages, disadvantages, importance also.
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PROFILE OF
THE STUDY
Chapter – III
_________________________________
PROFILE OF THE STUDY

3.1 Introduction
3.2 Capital market in India: a brief overview
3.3 Background
3.4 Classification of market
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3.5 The regulatory framework and legislation: a discussion

3.6 Acts governing the capital markets
3.7 Conclusion
CHAPTER - III
PROFILE OF THE STUDY
3. 1 INTRODUCTION
The capital market in India is a market for securities, where companies and
governments can raise long term funds. It is a market designed for the selling and
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buying of stocks and bonds. Stocks and bonds are the two major ways to generate
capital and long term funds.
The capital market is the backbone of every country as it can affect the financial
position of the country and regulate the economy. The heart of economic growth
lies in the capital market which helps in providing the allocation of funds and
mobilization of resources. The major understanding and regulation of the capital
market have been an important requirement for the industrial and commercial
development of the country. The capital markets cater to the need for a long -term
fund that is required for the development of the industrial and commercial sectors.
Broad Constituents in the Indian Capital Markets
 Fund Raisers
Fund Raisers are companies that raise funds from domestic and foreign sources,
both public and private. The following sources help companies raise funds.
 Fund Providers
Fund Providers are the entities that invest in the capital markets. These can be
categorized as domestic and foreign investors, institutional and retail investors.
The list includes subscribers to primary market issues, investors who buy in the
secondary market, traders, speculators, FIIs/ sub-accounts, mutual funds, venture
capital funds, NRIs, ADR/GDR investors, etc.
 Intermediaries
Intermediaries are service providers in the market, including stock brokers, sub -
brokers, financiers, merchant bankers, underwriters, depository participants,
registrar and transfer agents, FIIs/ sub-accounts, mutual Funds, venture capital
funds, portfolio managers, custodians, etc.
 Organizations
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Organizations include various entities such as MCX-SX, BSE, NSE, other regional
stock exchanges, and the two depositories National Securities Depository Limited
(NSDL) and Central Securities Depository Limited (CSDL).
Market Regulators
Market Regulators include the Securities and Exchange Board of India (SEBI), the
Reserve Bank of India (RBI), and the Department of Company Affairs (DCA).
3.2 Capital market in India: a brief overview
The capital market is the place that acts as the platform between the suppliers and
the buyers. The savings and investments are channelized between the persons who
have capital and the person who needs capital. In simpler terms, the market where
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buyers and sellers engage in trading of financial securities like bonds, stocks, etc.
However, the market is much wider than securities. The participants during such
transactions can be an individual as well as an institution.
It includes all types of lending and borrowing. The capital market is generally for
the raising of long-term funds. The markets deal mainly with debts and equity
securities. There are different types of buyers such as businessmen, companies,
government or it can be general people. The major regulatory body is the
RBI(Reserve bank of India) assisted by the Ministry of Finance and the
SEBI(Security Exchange Board of India).
3.3 Background
The capital markets of India have a golden history of approximately 200 years or
more than 2 centuries. It dates back to the year 1875 when India was under the
direct control of the British Government and the Queen of England, the first time
the Bombay Stock Exchange was set up and led to the introduction of capital
markets in India among the local people. There was hardly any existence and role
of the capital market as agriculture was the primary sector of the economy.
The capital market was mostly dominated by government securities and there were
a few individual investors. It started flourishing in the early nineties with the
introduction of liberalization, globalization, and privatization and Sensex touched
more than 4,000 points from hardly a thousand.
3.4 Classification of market
The capital market can be classified as primary market and secondary market. The
primary market is also known as the Stock Market. This is also known as the new
issue market as the investors can buy securities directly from the company that
issues. The securities are also known as primary offerings or Initial Public
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Offerings (IPO) or they can also be raised through the right issue. The company
sells its stocks or shares to the general public and investors for generating the
fund. It deals with the securities that were not in existence pr eviously and the fresh
securities offered to the public to invest for the first time.
The secondary market is for the buying and selling of securities that are already
existing and issued by the companies. They are also known as old capital markets.
When the securities are first initially offered to the public or get listed in the stock
exchanges then it is dealt exclusively in the stock exchange and further, the stock
exchange is regulated by the Securities Exchange Board of India. The stocks,
shares, and bonds are bought and sold by the general public.
The market can also be classified on the type of securities as the stock market and
the bond market. The stock market is also known as the share market or equity
market. It is a place where the shares are bought and sold or the economic
transactions that have a certain monetary value. The price of shares is highly
dynamic as it can change from the fluctuations of demand and supply or the status
of the company. The stock market has all the publicly listed companies that can be
owned by the private, government, or joint ventures.
The bond market is also known as the debt securities market in which the investors
purchase the securities in terms of bonds. The credit market can have various types
of issue markets such as the government issue market, the corporate debt issue
market, etc.
3.5 The regulatory framework and legislation : a discussion

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The regulation of capital markets has been very important for development and
growth as they provide a stable, steady, and secure platform for both the suppliers
and the buyers. If not then there can be massive loss or gain in finance which
would be unfair for the general public. Various organizations regulate the market
to keep the economy stable. The regulatory structure has been framed under the
four pillars that are the Ministry of Finance, Reserve Bank of India, Security and
Exchange Board of India, and the National Stock Exchange.
1. Ministry of Finance(MoF)-
The ministry depicts that the Government of India plays a very important role and
their economic policies and manifestos help in market regulation and framework.
They formulate rules and analyze them for the efficient and effective growth of the
market. The Department of Economic Affair which manages the market works
under certain sets of laws that are the Depositories Act, 1996, Securities Contract
(Regulation) Act, 1956, and Securities and Exchange Board of India Act, 1992.
There are many other laws such as the Companies Act, 2013, etc.
2. Reserve Bank of India-
The body that was established in 1934 frames the policies, formulates the bodies
and regulates the rules as per the current situation. RBI has active participation in
the stock market and also sets the various parameters that are used in the
transactions of debt, equity, and other types of securities. They are the bank
regulators also as they have access to many bank accounts as they have large funds
to control the capital market since banks have the most generated capital on hold.
They also set various parameters for regulation such as repo rate, reverse repo
rate, etc. They are the intermediary body between the market and the government.
They have other various functions in capital markets such as the implementation
of various monetary policies, managing the foreign exchange system, settlement,
and payments systems.
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3. Security Exchange Board of India (SEBI)-
This body can also be considered as the apex body of capital market regulators.
SEBI is a principal regulatory body that is also a statutory body est ablished under
the SEBI Act,1992. SEBI was earlier established as the non statutory body in
1988. They not only protect the interest of investors in securities but also promote
the market. It supervises, controls, and manages several institutional brokers,
investors, companies, and all other associated persons related to the market. The
body’s primary function is to prohibit malpractice or unfair trade practices such as
insider trading or manipulating funds. The stock exchanges work under the direct
control of this body as they adopt the flexible and adaptable approach for
regulating the market. They perform many other such regulatory functions such as
training of intermediaries, auditing of stock exchanges, regulating and registering
the mutual funds.
Recently, the review and merger of SEBI(Issue and Listing of Debt Securities)
Regulations, 2008 and SEBI(non-convertible Redeemable preference shares)
Regulations 2013 into a single regulation- SEBI(Issue and Listing of Non-
Convertible Securities) Regulations, 2021.
3.6 Acts governing the capital markets
 The Depositories Act, 1996- The Act regulates the depositories in

Securities. The primary objective of this Act is to ensure free transferability
of securities with speed, accuracy and security. The Act eases the
ownership of transferability of ownership from one person to another in a
convenient way. It has made the securities freely transferable in case of
Public limited companies along with the securities.
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 Securities Contract (Regulation) Act, 1956- The regulatory Act deals in all
types of issues related to Stock trading. The Act aims at smooth functioning
of the stock exchanges. It prevents any kind of defective transactions. It
especially deals in listing of stock exchanges and contracts in securities.
Security and Exchange Board of India Act,1992- This Act provides the
statutory powers to the SEBI organisation. The governing body regulates the
market in a multifarious manner by protecting the interest of the shareholders,
preventing any kind of malpractices in the market and promoting the
development of the Securities Market. The Act provides wide powers and
scope to the SEBI in order to effectively and efficiently run the capital market.
3.7 Conclusion
It include profile of the study.
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DATA ANALYSIS
AND
INTERPRETATION
Chapter – IV
_________________________________
DATA ANALYSIS AND INTERPRETATOIN

4.1 Introduction
4.2 Annual Reports
4.3 Objectives
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4.4 Movements in Primary Market

4.5 Movements in Secondary Market
4.6 Overview of The Indian Capital Markets
4.7 Conclusion
CHAPTER - IV
DATA ANALYSIS AND INTERPRETATION
4.1 INTRODUCTION
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This chapter represent the data analysis and interpretation with the help of tables,
charts, diagrams with different statistical tools and techniques. It also covers
hypothesis and its testing.
4.2 ANNUAL REPORTS
Table 1. ANNUAL REPORT OF CAPITAL MARKET IN INDIA 2018-2019

or 2019-2020
(16 kb) or (138 kb)

Date : Aug 25, 2020
Capital Market - Primary and Secondary
(Amount in ₹ lakh crore)
2018-19 2019-20 P
Item
Number Amount Number Amount
1 2 3 4 5
I. PRIMARY MARKET
A. Prospectus and Rights Issues
1. Private Sector (a+b) 154 0.5 106 0.8
a) Financial 31 0.4 38 0.2
b) Non-Financial 123 0.1 68 0.6
2. Public Sector (a+b+c) 4 0.0 3 0.1
a) Public Sector Undertakings 4 0.0 2 0.0
b) Government Companies … … … …
c) Banks/Financial Institutions … … 1 0.1
3. Total (1+2, i+ii, a+b) 158 0.5 109 0.9
Instrument Type
(i) Equity 133 0.2 75 0.8
(ii) Debt 25 0.4 34 0.1
Issuer Type
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(a) IPOs 123 0.2 58 0.2

(b) Listed 35 0.4 51 0.7
B. Euro Issues (ADRs and GDRs) 1 0.1 … …
C. Private Placement
1. Private Sector (a+b) 2,162 3.9 1,467 3.3
a) Financial 1,911 2.7 1,279 2.3
2. Public Sector (a+b) 187 2.5 244 3.5
a) Financial 150 2.1 157 2.2
3. Total (1+2, i+ii) 2,349 6.4 1,711 6.8
(i) Equity 14 0.1 13 0.5
(ii) Debt 2,335 6.3 1,698 6.3
D. Qualified Institutional Placement 14 0.1 13 0.5
E. Mutual Funds Mobilisation (Net)# 1.1 0.9
1. Private Sector 0.6 0.2
2. Public Sector 0.5 0.6
II. SECONDARY MARKET
BSE
BSE Sensex: End-Period 38,672.9 29,468.5
Period Average 35,971.8 38,756.7
Price Earning Ratio@ 28.0 17.8
Market Capitalisation to GDP ratio
79.6 55.8
(%)
Turnover Cash Segment 7.8 6.6
Turnover Derivatives Segment 0.0 2.6
NSE
S&P CNX Nifty: End-Period 11,623.9 8,597.8
Price Earning Ratio@ 29.0 19.4
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Market Capitalisation to GDP ratio

78.7 55.3
(%)
Turnover Cash Segment 79.5 90.0
Turnover Derivatives Segment 2,376.0 3,445.3
…: Nil. P: Provisional (for 2019-20). #: Net of redemptions. @: As at
end of the period.
Source: SEBI, NSE, BSE and various merchant bankers.
Table 2. ANNUAL REPORT OF CAPITAL MARKET IN INDIA 2019-2020 or

2020-2021
(11 kb) or (33 kb)

Date : May 27, 2021
Capital Market - Primary and Secondary
(Amount in ₹ crore)
2019-20 2020-21 (P)
Item
Number Amount Number Amount
1 2 3 4 5
I. PRIMARY
MARKET
A. Public and Rights
Issues
1. Private Sector (a+b) 107 80,493.0 90 1,07,867.9
a) Financial 38 17,335.8 26 31,395.9
b) Non-Financial 69 63,157.2 64 76,472.0
2. Public Sector
3 11,455.9 5 12,485.2
(a+b+c)
a) Public Sector
2 1,115.1 2 1,262.9
Undertakings
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b) Government
… … … …
Companies
c) Banks/Financial
1 10,340.8 3 11,222.3
Institutions
3. Total (1+2, i+ii,
110 91,948.9 95 1,20,353.1
a+b)
Instrument Type
(i) Equity 76 76,964.9 78 1,10,118.3
(ii) Debt 34 14,984.0 17 10,234.8
Issuer Type
(a) IPOs 58 21,285.6 55 31,029.7
(b) Listed 52 70,663.28 40 89,323.4
B. Euro Issues (ADRs
… … … …
and GDRs)
C. Private Placement
1. Private Sector (a+b) 1,474 3,28,142.5 1,764 4,33,946.5
a) Financial 1,286 2,29,298.6 1,480 2,82,355.3
b) Non-Financial 188 98,843.9 284 1,51,591.3
2. Public Sector (a+b) 244 3,51,255.8 216 3,82,435.6
a) Financial 156 2,13,037.3 138 2,55,149.9
b) Non-Financial 88 1,38,218.5 78 1,27,285.7
3. Total (1+2, i+ii) 1,718 6,79,398.3 1,980 8,16,382.1
(i) Equity 13 51,216.4 30 74,738.4
(ii) Debt 1,705 6,28,181.9 1,950 7,41,643.7
D. Qualified
Institutional 13 51,216.4 30 74,738.4
Placement
E. Mutual Funds
87,300.8 2,14,743.0
Mobilisation (Net)#
1. Private Sector 24,059.4 1,42,377.9
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2. Public Sector 63,241.4 72,365.1

II. SECONDARY
MARKET
BSE
Sensex: End-Period 29,468.5 49,509.2
Price Earnings Ratio@ 17.8 34.4
Market Capitalisation
55.8 104.3
to GDP ratio (%)
Turnover Cash
6,60,896.0 10,45,089.6
Segment
Turnover Equity
2,62,268.6 3,50,60,169.1
Derivatives Segment
NSE
Nifty 50: End-Period 8,597.8 14,690.7
Price Earnings Ratio@ 19.4* 33.2*
Market Capitalisation
55.2 103.6
to GDP ratio (%)
Turnover Cash
89,98,811.1 1,53,97,910.0
Segment
Turnover Equity
34,45,32,891.8 64,36,18,108.3
Derivatives Segment
…: Nil. P: Provisional (for 2020-21). #: Net of redemptions. @: As at end
of the period.
*: Price Earnings Ratio of Nifty 50 for 2019-20 and 2020-21 are not
comparable due to change in calculation methodology by NSE w.e.f.
March 31, 2021.
Source: SEBI, NSE, BSE, CSO, various merchant bankers and RBI Staff
Calculations.
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4.3 OBJECTIVES
 To analyze fund mobilizations by the Indian corporate

 To analyze Indian secondary market operations
 To bring a snapshot of Indian Depository and Derivatives services
4.4 MOVEMENTS IN PRIMARY MARKET
Fund mobilization through public issue of Equity, Debt and Private

placement has turn in to major implications in the corporate operations. Hence
we have taken the data from NSE, BSE, MSEI for quick review. The following
Table-1 brings the funds strengthening for the Indian corporate.
Table 3.FUND MOBILIZATION BY CORPORATE (CRORE)
Particulars Dec-20 Jan-21

A. Funds Mobilization through Public Issue (I+II) 1652 10262
I. Equity Public Issue 1652 5015
a. IPOs (i+ii) 1353 4933
i. Main Board 1351 4933
ii. SME Platform 3 0
b. FPOs 0 0
c. Equity Right Issue 299 81
II. Debt Public Issue 0 5248
B. Funds Mobilization through Private Placement 97335 62127
1. QIP/IPP 7423 1170
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2. Preferential Allotment 1782 5333

3. Private Placement of Debt 88130 55624
Total Funds Mobilised (A+B) 98987 72389
Source: SEBI, NSE, BSE and MSEI
Interpretations:
During January 2021, there were two Main Board IPO issues and one rights issue,
mobilising ₹4,933 crore and ₹81crore, respectively. During January 2021, there
were four public issues of corporate bonds, amounting to ₹5,248 crore
compared to no public issue of corporate bond duri ng December 2020. An
amount of ₹ 6,503 crore was raised through private placement of equity (i.e.,
preferential allotment and qualified investment plan) during January 2021,
against ₹ 9,205 crore during December 2020. Private placement of corporate debt
reported on BSE and NSE stood at ₹55,624 crore during December 2020,
compared to ₹88,130 crore during December 2020.
4.5 MOVEMENTS IN SECONDARY MARKET
Table 4. Overview of Indian Capital Market
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Source: BSE, NSE and MSEI
Interpretations:
At the end of January 2021, Nifty 50 closed at 13,635 points registering a

decrease of 2.5 per cent as compared to the 13,982 points level at the end of
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December 2020. S&P BSE Sensex closed at 46,286 at the end of January 2021,
indicating a decrease of 3.1 per cent as compared to the 47,751 at the end of
December 2020. Nifty 50 reached its intraday high for the month at 14,754, on
January 21, 2021 and intraday low for the month at 13,597, on January 29,
2021. S&P BSE Sensex too reached its intraday high at 50,184 for the month,
on January 21, 2021 and intraday low at 46,160 for the month, on January 29,
2021. The P/E ratios of S&P BSE Sensex and Nifty 50 were 31.8 and 36.6,
respectively, at the end of January 2021 compared to 33.5 and 38.5,
respectively, at the end of December 2020. At the end of January 2021, the
market capitalization of both the BSE and NSE decreased by one per cent and
0.9 percent, respectively over the level as at the end of previous month .
Graph 1. Movements of S&P BSE Sensex and Nifty 50 during January 2021
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Source: BSE and NSE
4.6 OVERVIEW OF THE INDIAN CAPITAL MARKETS
Indian capital markets have a history of more than a century. However, they
remained largely inactive till the 1970s. Partial liberalization of the economy and
pro-capital market policies during the 1980s infused some life into the markets,
but it was only the economic liberalization of the 1990s that provided a lasting
impetus. Today, segments of India’s capital markets are comparable with
counterparts in many of the advanced economies in terms of efficiency (price
discovery), tradability (low impact cost), resilience (co-movement of rates across
product classes and yield curves), and stability. In particular, their ability to
withstand several periods of stress, notably the Asian financial crisis i n 1997-98,
the global financial crisis in 2007-09 and the “taper tantrum” episode in 2013, is a
sign of their increasing maturity.
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In terms of size, all the major segments of the capital market, viz., Central
Government securities (G-Sec) market, market for State Development Loans
(SDL), corporate bond market and equity market - the so called “cash markets” -
have experienced consistent growth during the past few decades in terms of
primary issuance, market capitalization (for equity market) and trading volumes in
the secondary market. Equity market remains the largest segment, even as G -Sec,
SDL and corporate bond markets have grown steadily
Graph 2. Growth in outstanding stock of the Indian Capital Market
INTERPRETATION
Growth of the Government Securities market: A streamlined, transparent and

market-based primary issuance process has underpinned the development of the
government securities markets, both central government securities (G -Secs) and
state government securities (SDLs). In the primary G-Sec markets, issuances are
made as per a half-yearly pre-announced calendar. The calendar specifies the
amount, tenor and issuance dates. The tenor of the G-Secs goes up to 40 years. G-
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Secs are mostly fixed-coupon bonds, although instruments such as inflation-linked

bonds, capital-indexed bonds, floating-rate bonds and bonds with embedded
options are also issued. Currently, all issuances are done through weekly auctions.
Issuances are supported by Primary Dealers (PDs) who fully underwrite the issue.
Auctions are conducted through both competitive bidding [for all residents,
Foreign Portfolio Investors (FPIs) and Non-Resident Indians (NRIs)], which
determines the market-clearing price, and non-competitive bidding (for retail
investors, largely), which receives the allotted securities at the market-clearing
price. More than 90% of the issuances are done through re-opening of existing
securities which has contributed significantly to market liquidity by spreading out
ownership across a large number of investors. The Reserve Bank has also
introduced “when-issued” segment for the G-Sec market since 20063.
The profile of both G-Secs and SDLs in terms of stock and flow characteristics is
shown in Tables 1 and 2. The weighted average coupon on G-Secs has remained
stable across interest rate cycles imparting stability to the debt profile as the
average maturity of issuance (more than 10 years) is one of the longest globally,
helping limit the rollover risk for the central government. SDL issuance has
increasingly formed a much greater share of issuance relative to the G-Secs, rising
from around 25% of issuance in 2013-14 to around 45% in 2017-18.
Table 5. Characteristics of Central Government borrowings
Table 1: Characteristics of Central Government borrowings (G-Secs)
Year Issued during the Year Outstanding stock
Weighted
Weighted Average Weighted Average Weighted Average
Average Yield
Maturity (years) Coupon (%) Maturity (years)
(%)
2013-14 8.4 14.2 8.0 10.0
2014-15 8.5 14.7 8.1 10.2
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2015-16 7.9 16.0 8.1 10.5
2016-17 7.2 14.8 8.0 10.7
2017-18 7.0 15.0 8.0 10.7
2018-19 7.8 14.7 7.8 10.4
Source: Annual Report of Reserve Bank of India (2017-18) and Database of Indian Economy
(DBIE), Reserve Bank of India
Table 6. Issuance profile of Government borrowings
Table 2: Issuance profile of Government borrowings (in US $ billion)
Year Central Government (G-Secs) State Governments (SDLs)
Gross Outstanding stock at Outstanding stock at

Gross issuance
issuance (end-March) (end-March)
2013-14 90 609 31 174
2014-15 91 648 36 199
2015-16 85 674 41 243
2016-17 80 754 56 321
2017-18 91 795 63 346
2018-19 83 837 70 404
Source: Database of Indian Economy (DBIE), Reserve Bank of India
Liquidity of the G-Sec market: Liquidity in the secondary market for government
securities has noticeably improved over the past decade (Chart 2). The average daily
volume in the G-Sec and SDL markets has remained higher than that of corporate bond
and equity cash markets. The liquidity in G-Secs is, however, mainly concentrated in a
few benchmark securities, particularly the 10-year benchmark, and SDLs are relatively
less liquid than the G-Secs, yielding typically 50-75 basis points more than the G-Secs in
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terms of yield at the 10-year tenor. The average bid-ask spread for liquid securities in the
G-Sec market has remained less than a basis point during the last few years . Strikingly,
bid-ask spread as well as the price impact of trade for the 10 year Indian G-Sec
benchmark are comparable to or lower than those for most of the advanced economies of
the world including the US, the UK, France and Germany .
Graph 3. Secondary market liquidity in terms of average daily volume
There are several proximate drivers of this liquidity of the Indian G-Sec
market:
(i) Regular issuance of the 10-year benchmark has concentrated trading interest in
this segment of the yield curve. Efforts are now being made to regularise issuance
of benchmark securities at shorter maturities (2 and 5 years).
(ii) Secondary market transactions are predominantly (around 80%) conducted in

an anonymous electronic order matching system (NDS-OM) which is unique in the
world for debt trading. While the remaining transactions happen over -the-counter
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(OTC) outside the NDS-OM4, they are nevertheless reported to the NDS-OM
platform.
(iii) Near real-time dissemination of trade information publicly accessible on the

website of the Clearing Corporation of India (CCIL) ensures price transparency.
(iv) Settlement is guaranteed by the CCIL and takes place through Delivery versus
Payment (DvP) mechanism on T+1 basis. Guaranteed settlement implies there is
no risk to investors from each other of delivery failures.
(v) Finally, enabling of short-selling facilitates a two-way interest adding to

activity and price discovery in the market.
Graph 4. Average bid-ask spread for liquid Government Securities
INTERPRETATION
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Growth and liquidity of the corporate bond market: The corporate bond market has
grown over the years to a size of USD 447 billion of outstanding stock as at the
end of March 2019, clocking an annualised growth rate of 13.5% during the last
four years. Issuances are predominantly through private placement and dominated
by high credit issuers. In 2018-19, 79% of the issuances were by entities rated ‘A’
or higher. Secondary market trading has also picked up in the recent past, with
trading volumes rising from USD 170 billion in FY 2014-15 to USD 267 billion in
2018-19. Trading is entirely OTC with trades settled bilaterally and reported to
stock exchanges.
Graph 5. 10-year benchmark G-sec liquidity in different countries
INTERPRETATION
Investor Base: There has been a conscious and continuous effort by the Reserve
Bank to expand the investor base and thereby liquidity of the markets it regulates,
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while preserving financial stability. The investor base for G -Secs, for instance, has
expanded over the past decade in terms of an increase in the share of holdings by
insurance companies and corporates and a corresponding decrease in the share of
holding by commercial banks (Chart 6). In parallel, calibrated access for global
investors through the FPI route is helping broaden the investor base, while also
bringing in diversity of trading views and strategies.
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Graph 6. Holding pattern for Government Securities (% held by each investor

group)
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INTERPRETATION
Funding and Derivatives Markets: A necessary condition for the development of

capital markets is the existence of funding and securities lending markets as well
as derivative markets for risk transfer. Repo funding in Indian G -Secs is fairly
deep with average daily volume of about USD 20 billion (Chart 7). In case of
interest rate derivatives, there is reasonable liquidity in Interes t Rate Futures (IRF)
and Overnight Indexed Swaps (OIS) markets5. Much of the recent increase in
activity can be attributed to the Reserve Bank allowing non-residents to participate
in interest rate derivatives markets for both hedging and trading purposes.
Graph 7. Average daily volume in G-Sec and corporate bond repo
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INTERPRETATON
The National Conference on “Capital Market – Growth with Governance” aims to

assemble investors, practitioners, policy makers and other stake holders of the Indian
capital market Eco-system to provide them an excellent platform to share views,
experiences and research results on every aspect of Indian capital market such as
Governance in Security Market, Investors protection; Vulnerability of Capital Market to
FII Inflows, PSU Divestment, Role of Pension Fund, and Need for SME Exchanges. I not
only wish the conference a great success but also assume that ASSOCHAM shall
continue to organize such programs for larger public benefits with great degree of
excellence. ASSOCHAM extends earnest thanks to PricewaterhouseCoopers as our
knowledge partner in this conference and also thanks to industry partners, Ministry of
Corporate Affairs, SEBI, RBI, Conference Sponsors, Magazine Partner and Electronic
Media & Online Media Partners for supporting this initiative.
We are pleased to present the PricewaterhouseCoopers-ASSOCHAM joint thought

leadership study on Indian Capital Markets- Growth with Governance. The Indian
economy has undergone significant change in the last two decades. From the closed
economy of the 1980s, the 1990s was a decade of liberalization of the economy and in
the 2000s, the economy witnessed unprecedented growth. The growth in the economy
was duly supplemented by a significant increase in the capital markets activity. There
were significant changes to the legal framework, with Securities Exchange Board of India
(SEBI) being entrusted with the regulatory power to govern the capital markets to ensure
compliance. There was also technological advancement in the capital markets with the
introduction of terminal based trading replacing the open outcry system and launch of the
integrated market surveillance system, to monitor market malpractices, by the regulator.
The Corporate Governance framework was also strengthened through a series of
amendments to the existing governance structure, by introduction of Clause 49 to the
Listings Agreement and setting up of committees like the Naresh Chandra Committee
Report on Corporate Audit and Governance. So far India has risen up to the challenge of
a growing economy by ensuring that the requisite infrastructure is put in place to ensure
market best practices and restore investor confidence. The story of growth is incomplete
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without the presence of governance. The strong fundamentals of an economy are based
on the virtues of good governance and ethical practices. This thought leadership study
makes an attempt to chart the course of the Indian capital markets through the last two
decades of growth with governance.
Much has happened in the Indian capital market in the last 17 years. With its foundations
laid in socialist based economy of four decades, with strict government control over
private sector participation, foreign trade and foreign direct investment, India opened its
gates to the outside world in the early 1990s. Since then its economy and financial
markets underwent radical changes, largely in response to the economic crisis of the late
1980s. The government control on foreign trade and investment were loosened and the
barriers to entry in the days of the license raj were relaxed.
The emergence of Securities and Exchange Board of India (SEBI) as the supreme capital
market regulator showed India’s commitment to come across as a strong economic force,
through establishing market best practices of enhanced corporate disclosure and increased
investor protection.
The establishment of National Stock Exchange (NSE), a state-of-the art exchange, with
sophisticated technology to improve trading practices and reduce unethical dealings,
supported by a strong legal framework and technological base to strengthen the
governance structure, has been the highlight of the Indian capital market in the last
decade. The opening up of the economy has increased the flow of Foreign Direct
Investment (FDI) and has put India on the global map, as a new-age economic force to
reckon with.
The increased level of sophistication in the market has been duly supported by
increasingly complex instruments like derivatives and other structured products. While,
the recent global meltdown has made us aware of the perils of sophisticated markets, the
learning has been to follow a path of caution while maintaining a steady pace.
Several steps have been taken by the regulator to enhance the level of corporate
governance and reporting requirements of the Indian stock market. Significant legislation
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has taken place in this area to curb market malpractices. The large scams and frauds have
taught us that growth without a robust governance structure falls short of global
expectations. The regulators have been active in responding to such events and in certain
cases have undertaken proactive measures to stop such events from recurring.
This paper attempts to discuss the journey of the Indian capital market from the
prereform era to the current era of liberalisation and enhanced governance. The depleting
foreign currency reserves in 1991 forced India to start the process of economic
liberalisation. The reforms were accomplished by allowing increasing competition and
greater foreign participation to provide fillip to the troubled economy.
The capital markets reforms in 1991 were preceded by a regime which ensured almost
complete control of the state over the financial markets. Initial Public Offerings (IPO)
were controlled through the Capital Issues Control Act. The Controller of Capital Issues
(CCI) controlled the price and quantity of IPO and trading practices were short of
transparency. The banking sector too was significantly controlled. There were few private
banks and those faced challenges on their expansion plans. The banking sector suffered
from lack of competition, low capital base, low productivity and high intermediation cost.
After the nationalisation of large banks in 1969 and 1980, the government-owned banks
dominated the banking sector. The Reserve Bank of India (RBI) controlled the interest
rates and the financial sector was replete with entry barriers, significantly restricting
opportunities for the establishment of new banks, insurance companies, mutual funds and
pension funds.
The Unit Trust of India (UTI) created in 1964 was the only mutual fund and it enjoyed
complete monopoly of the mutual fund business up until 1988. The resource mobilisation
by mutual funds demonstrates UTI’s dominance in the early 1990s. The early 1990s
therefore, was a time when the primary role of the financial system in India was to
channel resources from the excess to the deficit. The role of technology was limited and
customer relationship and service was not a priority. Risk management procedures and
prudential norms were weak, affecting asset portfolio and profitability.
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Stock exchange
The Bombay Stock Exchange (BSE), the oldest and the largest stock exchange in
India, traded for two hours in a day with an open outcry system. The exchange was
managed in the interests of individual members, a majority of whom had inherited
their seats. A large proportion of stocks listed on the exchange were not actively
traded. There was minimum supervision from the exchanges and speculation was
rampant. There were regional exchanges which were unconnected and engaged in
open outcry sysem of trading. Each exchange had a board representative
nominated from the Capital Markets division of the Minstry of Finance, the then
regulator of the capital markets.
The capital market reforms were based on improving two fundamental aspects.
First, the improvement in the legal reporting framework and second the
improvement in the technology framework.
Legal framework
There have been significant reforms in the regulation of the securities market since
1992 in conjunction with the overall economic and financial reforms. A key
element of the reform strategy was building a strong independent market regulator.
The SEBI Act, which came into force in early 1992, established SEBI as an
autonomous body. The apex capital market regulator was empowered to regulate
the stock exchanges, brokers, merchant bankers and market intermediaries. The
Act provided SEBI the necessary powers to ensure investor protection and orderly
development of the capital markets.
The introduction of free pricing in the primary capital market has significantly
deregulated the pricing control instituted by the erstwhile CCI regime. While, the
issuers of securities can now raise capital without seeking consent fr om any
authority relating to the pricing, however the issuers are required to meet the SEBI
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guidelines for Disclosure and Investor Protection, which, in general, cover the
eligibility norms for making issues of capital (both public and rights) at par and a t
a premium by various types of companies.
The freeing of the pricing of issues led to an unprecedented upsurge of activity in

the primary capital market as the corporate mobilised huge resources. However, it
did expos the inadequacies of the regulations. In order to address these
inadequacies, SEBI strengthened the norms for public issues in April 1996. The
graph below shows the BSE index movement from 1990 to 2006.
Graph 8. Movement of indices of NSE and BSE
INTERPRETATION
The disclosure standards were enhanced to improve transparency and uphold the
objective of investor protection. The issuers are now required to disclose
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information on various aspects, such as, the track record of profitability, risk
factors, etc. Issuers now also have the option of raising resources through fixed
price floatations or the book building process.
Clearing houses have been established by the stock exchanges and all transactions
are mandatorily settled through these clearing houses and not directly between the
members, as was practiced earlier.
The practice of holding securities in physical form has been replaced with
dematerialised securities and now the transfer is done through electronic book
keeping, thereby eliminating the disadvantages of holding securities in physic al
form. There are two depositories operating in the country.
The margin system, limits on intra-day, trade and settlement guarantee fund are
some of the measures that have been undertaken to ensure the safety of the market.
The trading and settlement cycles have been significantly reduced. The cycles
were initially shortened from 14 days to 7 days. The settlement cycles were further
shortened to T+3 for all securities in 2002. The settlement cycle is now T+2.
Listed companies are required to furnish unaudited financial results to the stock
exchanges and also publish the same on a quarterly basis. To enhance the level of
disclosure by the listed companies, SEBI decided to amend the Listing Agreement
to incorporate the segment reporting, accounting for taxes on income, consolidated
financial results, consolidated financial statements, related party disclosures and
compliance with accounting standards.
The last few years have seen significant interaction with the international capital
markets. A major step towards that was the inclusion of Foreign Institutional
Investors (FIIs) such as mutual funds, pension funds and country funds to operate
in the Indian markets. As a quid pro quo, Indian firms have also raised capital in
international markets through issuance of Global Depository Receipts (GDRs),
American Depository Receipts (ADRs), Euro Convertible Bonds (ECBs), etc.
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The SEBI’s regulatory realm stretches beyond the stock exchanges to merchant
bankers, registrars, share transfer agents, underwriters, mutual fun ds and various
other advisors and market intermediaries. There have been efforts made to increase
transparency in the takeover process and interests of minority shareholders.
Graph 9. Foreign Portfolio Investments
Derivative market
One of the most noteworthy achievements of the Indian capital markets over the
past 17 years has been the development of the derivative market. It has
significantly enhanced the sophistication and maturity of the market. In India,
derivative trading began in June 2000, with trading in stock index futures. By the
fourth quarter of 2001, each of India’s two largest exchanges had four equity-
derivative products: futures and options for single stocks, and futures and options
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for their respective stock indices. The NSE has become the largest exchange in
single stock futures in the world, and by June 2007, it ranked fourth globally in
trading index futures, a sign of an evolving and maturing market.
Market liquidity too has increased greatly since 1992. This was primarily
attributed to settlement rules (discussed below) and the introduction of derivatives
trading. The move from fixed period to rolling settlements, shortened settlement
periods, and a dramatic increase in derivatives trading contributed to steadily
increasing market liquidity.
Technology framework
The advent of technology to the markets has been largely attributed to the National
Stock Exchange (NSE). NSE introduced the screen based trading and settlement
system, supported by a state-of-the –art technology platform. To fulfill the
commitment to adopt global best practices and bring about more transparency to
the capital markets functioning, SEBI also assumed the responsibility of
monitoring the markets and stock exchanges. A significant step towards that
initiative was the launch of the Integrated Market Surveillance System (IMSS) in
2006.
The IMSS equipped the regulator to identify doubtful market activity. The IMSS’s
primary objective is to monitor the market activities across various stock
exchanges and market segments including both equities and derivatives. IMSS
collects and analyses data not only from the stock exchanges but also from
National Securities Depository, Limited. (NSDL), Central Depository Services
(India) Limited. (CDSL), clearinghouses, and clearing corporations.
The RBI introduced the electronic funds transfer system, “The Reserve Bank of
India National Electronic Funds Transfer System" (referred to as "NEFT System"
or "System"). The objective of the system is two-fold. First, is to establish an
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electronic funds transfer system to facilitate an efficient, reliable, secure and

economical system to funds transfer and clearing in the banking sector throughout
India. Second, is to relieve the stress on the paper based funds transfer and
clearing system.
The crisis which originated in the United States (US) housing mortgage market in
2007 transformed into a full fledged global financial crisis, considered to be the
worst ever since the Great Depression. The financial landscape changed drastically
with the collapse of Lehman Brothers in 2008. Irrespective of the degree of
globalisation of a country and soundness of economic fundamentals, the crisis
spread across the world in varying degrees of penetration. The international
transmission of liquidity shocks was fast and unprecedented. The falling asset
prices and valuation uncertainty affected market liquidity, the failure of leading
global institutions and the deleveraging process tightened the market for funding
liquidity. While the global financial markets have started showing signs of
stabilisation, credit flow in the advanced markets is yet to recover.
Despite the decoupling theory, the emerging economies too faced problems and
were affected during the crisis. Decoupling theory basically states that when the
growth of the developed economies goes downwards, the emerging economies
would remain unaffected due to their foreign exchange reserves, corporate balance
sheets and the banking system. In the peak of the global economic crisis however,
the decoupling theory did not make sense as emerging economies, including India,
faced capital flow reversals, sharp widening of spreads on sovereign and corporate
debt and abrupt currency depreciations.
Even though the Indian banking system had no direct exposure to the sub prime
crisis and had very limited off balance sheet activities and securitised assets,
limited dependence on external demand as exports account for less than 15 % of
the GDP and growth is predominantly driven by domestic consumption and
investment, the financial crisis did affect the Indian economy. The seemingly 9 %
GDP growth rate fell down to 6 %. This was primarily because of India's
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integration into the world economy, India's two-way trade (merchandise exports
plus imports), as a proportion of GDP grew from 21.2% in 1997-98, the year of the
Asian crisis, to 34.7 % in 2007- 08 and the increase in the Indian corporates’
access to external funding. In the fiveyear period from 2003 to 2008, the share of
investment in India's GDP rose by 11 percentage points. Corporate savings
financed roughly half of this, but a significant portion of the balance financing
came from external sources. While funds were available domestically, they were
expensive relative to foreign funding. On the other hand, in a global marke t awash
with liquidity and on the promise of India's growth potential, foreign investors
were willing to take risks, and provide funds at a lower cost. In 2007 - 08, India
received capital inflows amounting to over 9 % of GDP as against a current
account deficit in the balance of payments of just 1.5 % of GDP. These capital
flows, in excess of the current account deficit, proove the importance of external
financing and the depth of India's financial integration.
Table 7. Key indicators of the global nature of the Indian economy
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Impact of the crisis on the Indian economy
India’s financial markets were impacted significantly by the crisis; India’s

dramatic growth was fuelled by significant foreign capital flows; Indian banks and
corporate found their overseas financing drying up, forcing the corporate to shift
their credit demand to the domestic banking sector. Also, in their frantic search for
substitute financing, corporates withdrew their investments from the domestic
money market mutual funds, putting redemption pressure on the mutual funds and
non- banking financial institutions. This substitution of overseas financing by
domestic financing brought both money markets and credit markets under
pressure. The foreign exchange market came under pressure because of reversal of
capital flows as part of the global deleveraging process.
Apart from the financial market effect, the slump in exports also added to the
trouble. The United States, European Union and the Middle East, which account
for three quarters of India's goods and services trade, were in a synchronised down
turn.
The Indian economy witnessed moderation in growth in the second half of 2008 –
09 in comparison with the robust growth performance in the preceding five years.
The deceleration in growth was particularly noticeable in terms of negative growth
in industrial output in Q4 of 2008–09 - a decline for the first time since the mid-
1990s (Table 1). This was on account of erosion of external demand which
affected industrial performance; a reflection of increasing globalisation of the
Indian industry.
The transmission of external demand shocks was swift and severe on export
growth, which declined from a peak of about 40 % in Q2 of 2008–09 to - 15 % in
Q3 and further to - 22 % in Q4; a contraction for the first time since 2001–02.
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Concurrently, domestic aggregate demand also moderated resulting from sharp

deceleration in the growth of private consumption demand. In order to respond to
the slowing demand, fiscal stimulus measures were undertaken by th e government
which included both tax cuts and increase in expenditure. This raised the fiscal
deficit of the Central Government by 3.5 % of GDP in 2008–09. Consequently, the
growth in government final consumption expenditure registered a sharp increase in
Q3 and Q4 of 2008–09. For example, if we see the GDP growth rates in the Indian
economy (Figure 1) the economy which was projected to grow at 9% fell to 6%.
Even though 6% is better that what developed economies grew at in the
recessionary period, it was simply not good enough for an emerging economy like
India because of the smaller base at which we operate on. Even if we look at the
Balance of Payments scenario (Figure 2) there was a significant deterioration in
the situation in 2009.
Graph 10. India - GDP Growth rate
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INTERPRETATION
In this graph mention the GDP Growth Rate of India. In this graph mention
information of seven years from 2003 to 2009. This graph show two lines first one
is GDP at factor cost and second one is GDP at market price.
Graph 11. Indian BOP scenario
INTERPRETATION
This graph show information of Indian BOP scenario. It includes two part first is
Balance of Payments Capital Account and second one is Balance of Payments
Current Account. This graph show information of eight years.
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Table 8. Key macroeconomic indicators – India
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Table 9. Components of aggregate demand in India (%)

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Government’s stimulus plan
The government’s fiscal stimulus packages, amounting to about 3 per cent of the
GDP, included additional public spending, particularly capital expenditure,
government guaranteed funds for infrastructure spending, cuts in indirect taxes,
expanded guarantee cover for credit to micro and small enterprises, and additional
support to exporters. These stimulus packages came on top of an already
announced expanded safety-net for the rural poor, a farm loan waiver package.
The entire fiscal stimulus in India was aimed at addressing the deficiency in
aggregate demand rather than extending support to the financial sector. While this
meant a deviation from the planned fiscal consolidation path as committed under
the Fiscal Responsibility and Budget Management (FRBM) Act, without the
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stimulus the deceleration in GDP growth during 2008–09 would have been much
sharper.
The measures put in place since mid-September 2008 have ensured that the Indian
financial markets continue to function in an orderly manner. The cumulative
amount of primary liquidity potentially available to the financial system through
these measures is over USD 75 billion or 7 % of GDP. This sizeable easing has
ensured a comfortable liquidity position starting mid November 2008 as evidenced
by a number of indicators including the weighted average call money rate, the
overnight money market rate and the yield on the 10 year benchmark government
security. Taking the signal from the policy rate cut, many of the big banks have
also reduced their benchmark prime lending rates.
Graph 12. Interest rates year end (%) * average from April to November
In the current scenario, India clocked a higher than expected GDP growth rate of
7.9% in the second quarter of 2009-10, and the economy is forecasted to grow at
6% plus in this fiscal. The rebound was suitably aided by the monetary stimulus,
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where the central bank has cut the key policy rates by a cumulative 4.25%, apart
from other measures. It was also attributed to various reasons including India’s
high domestic savings rate, the large domestic market and India Inc.’s cautious
response to the liquidity crisis, i.e. judicious use of key resources like cash and
management bandwidth with appropriate focus on cost rationalisation. This has
obviously not gone unnoticed with the global investors, and as soon as the global
markets started rallying earlier this year, strong FII inflows returned to the Indian
markets. Initial Public Offers (IPO’s) too are back in favour after a wash out for
most of 2008 and the first quarter of 2009.
Graph 13. Net FII investment position in India
Gra
ph
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14. Equity market scenario: Sensex as on 30 November, 2009
The index of industrial production recorded a 10.4% in August 2009 year -on-year
gain over its value in August 2008, as compared to a 6.8% year -on-year gain in
July. The services segment has also shown over 8% growth vis-à-vis the previous
quarter, and there is similar good news in the construction and mining segments.
The government’s stimulus package also helped raise sentiments and in spite of a
not too great monsoon year, the Indian economy seems set to reco rd one of the
higher growth rates internationally.
Capital account convertibility: Is India ready
Capital account convertibility (CAC) is a monetary policy that centres around the
ability to conduct transactions of local financial assets into foreign fina ncial assets
freely and at market determined exchange rates.
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CAC as a theory was coined by the Tarapore Committee in 1997, in an effort to

find fiscal and economic policies that would enable developing third world
countries’ transition to globalised market economies.
India currently has current account convertibility, i.e. foreign exchange is easily
available for import and export of goods and services. India also has partial capital
account convertibility i.e. an Indian individual or institution can invest in foreign
assets up to USD 25,000 and there are some caps on the foreign direct investment
in India.
The First Tarapore Committee was set up by the RBI in 1997 to study the
implications of executing FCAC in India. It recommended that the before CAC is
implemented, the fiscal deficit needs to be reduced to 3.5% of the GDP, inflation
rates need to be controlled between 3-5%, the non-performing assets (NPAs) need
to be brought down to 5%, Cash Reserve Ratio (CRR) needs to be reduced to 3%,
and a monetary exchange rate band of plus- minus 5% should be instituted.
However, most of the pre-conditions weren’t entirely fulfilled and the idea lost
steam in view of the Asian Crisis as well.
Over a period of time, with the improvement in India’s economic fundamenta ls

and the importance of a flat world and financial liberalisation policies, the
implementation of CAC has again become a debatable issue. However there are
major risks which have to be factored in. Going back to the Tarapore Committee,
the CRR currently stands at 5%, Inflation is expected to hit 6.5% to 7% by March
2010 and FY 09 fiscal deficit as a % of GDP is expected to be around 6.2% .
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Graph
15.
Centre
Fiscal
Defici
t as a
% of
GDP
There are benefits to fuller capital account convertibility for financial institutions,
including increased diversification, greater access to capital, and a broader range
of risk management tools. However, policymakers, financial institutions, and their
clients typically face additional challenges with fuller capital a ccount
convertibility. At about USD 104 billion, total foreign bank claims on India are
comparable to those on China and Russia. In contrast, Indian banks’ claims on
other countries are four times less than this total. With fuller capital account
convertibility, new risks will arise as crossborder transactions increase. Such
activities will not only involve different currencies and span many countries but
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also include on-balance sheet lending and funding, as well as off-balance sheet
derivatives and other complex financial transactions.
Categories of innovative products
Derivative products, i.e., products whose value is a function of the value of other
underlying financial products such as stocks, bonds, or loans, are a key category of
innovative products. The overall over-the-counter market for derivative products
has expanded dramatically over the past decade, rising from USD 90 trillion in
1998 to nearly USD 700 trillion by June of last year (in notional amounts) (Bank
for International Settlements 2008). Major types of derivative instruments include
those related to foreign exchange .
Graph 16 . Notional amount outstanding of over the counter derivatives
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Among derivatives, credit default swaps (CDS) have been the greatest source of
systemic risk. A credit default swap is a financial contract in which the protection
buyer (risk shedder) pays a fixed periodic fee in return for a contingent payment
by the protection seller (risk taker). The contingent payment is triggered by a
credit event of the entity that the contract refers to. Credit events, which are
specified in CDS contracts, may include bankruptcy, default, or restructuring. On
a gross notional basis, CDS grew from negligible amounts in 1998 to USD 58
trillion by December 2007 (about 10% of the total), although they fell
substantially last year to USD 32 trillion (The Depository Trust and Clearing
Corporation 2009). The gross notional value is the total value of potential payouts
specified in the contract.
Asset Backed Securities: The main source of instability and uncertainty for
financial markets has been the valuation of ABS, especially mortgage backed
securities. Traditional ABS is backed by the credit obligations of individuals, such
as residential mortgage loans, auto loans, and credit card balances. Collateralised
Debt Obligations (CDO’s) are similar in structure, but typically are backed by
investment-grade corporate loans and/or bonds. These include collateralised loan
obligations, which are based on loans, and collateralised bond obligations, which
are based on bonds. The bulk of securitised assets were originated in the US
(about USD 9.6 trillion out of a total of USD 12 trillion at the end of 2008).
Agency MBS, i.e., those originated by Freddie Mac, Fannie Mae, and Ginnie Mae,
made up just over half of that total (USD 5.0 trillion). Assets originating in Europe
totaled USD 2.4 trillion, the bulk of which were residential mortgage backed
securities.
4.7 Conclusion
This chapter include various types of graphs its analysis and interpretation.
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FINDINGS,
SUGGESTIONS
AND
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CONCLUSION
Chapter – V
_________________________________
FINDINGS, SUGGESTIONS AND CONCLUSION
5.1 Findings
5.2 Suggestions
5.3 Conclusion
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CHAPTER - V
FINDINGS, SUGGESTIONS AND CONCLUSION
5.1 FINDINGS:
 The past two decades have witnessed important policy reforms aimed at
liberalization and globalization of the Indian economy. To achieve an
efficient, transparent and vibrant financial sector in general and stock
market in particular, several financial sector reforms, changes in market
microstructure and trading practices were introduced.
 The Capital Issues (Control) Act 1947 was repealed and pricing of financial
assets was liberalized. As a part of market reforms, new stock exchange
was established, and the existing stock exchanges were demutualized and
exchanges adopted screen-based automated trading. The National Stock
Exchange (NSE) and Bombay Stock Exchange (BSE) launched several new
financial products and SEBI was set up as the regulator of capital market.
 As results of these reforms, Indian stock market has registered a notable
growth in terms of listed companies, trading volume and emerged as one of
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the favourite destination of investment. Against the back backdrop of these

reforms and changes, a study of behaviour of stock returns, particularly,
analysis of efficiency of stock market in a liberalized environment assumes
significance.
 Various schools of thought have theorized the behaviour of stock returns.
The Neo-classical School of Finance proposes a theory of efficient market
or efficient market hypothesis (EMH) based on rational expectation and no -
trade argument. Eugene Fama, one of the main architects and advocates of
the theory, provided strong theoretical foundations and a framework to te st
the EMH empirically.
 In an informationally efficient market, prices quickly absorb new
information and reflect all the available information instantly in such a way
that such price processing mechanism does not provide extra normal
returns. In other words, there is no possibility of predictability of returns by
using the history of returns and a simple buy and hold strategy would do
well in such an information ally efficient market.
 The vital functions of stock market such as optimal allocation of capi tal and
facilitation of climate conducive to investment would have adverse effects
if market were inefficient. Therefore, the study of efficiency assumes
importance. The large body of research conducted in the last three decades
itself reflects the importance of the informational efficiency of stock
market.
 Various methods are employed in empirical studies to test different forms
of market efficiency. Random walk hypothesis is considered one of the
effective and convenient ways to test weak form of efficiency. In an
efficient market, returns are expected to respond randomly to new
information and therefore it is not possible to predict future returns based
on past memory of prices.
 The early studies of 1960s and 1970s supported the view that stock returns
follow a random walk. There was a paradigm shift in post 1987 studies,
which reported nonlinear dynamics in stock returns. The conventional tests
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of market efficiency found to be incapable of capturing such dynamics.

Concomitant to this, long memory properties of stock returns have gained
particular attention over the last decade in finance.
 In the light of the above factors, the main purpose of the present volume
was to examine the returns behavior in Indian equity market in the changed
market environment. The book primarily focused on weak form of
efficiency. In this work, the random walk hypothesis was empirically tested
and the volume addressed issues such as nonlinear serial dependence mean
reversion, and long memory in stock returns. The data used in the study
consists of daily stock index returns of NSE and BSE, the major stock
exchanges in India. Eight indices including three sectorial indices from the
NSE and six indices from the BSE were chosen. The study has made
improvements from previous studies in terms of the application of
sophisticated tests, updated, comprehensive and disaggregated dataset,
addressing issues which have not received due importance in previous
research on Indian stock market.
 This study empirically tested whether stock returns in India follow a
random walk. Towards this end, data on major indices during the period
June 1997–March 2010 are analyzed using both parametric and non-
parametric tests, some of which are not employed in previous studies in
India.
 The results from parametric tests offered mixed evidence. The parametric
test results suggest significant rejection of random walk hypothesis in case
of smaller stock indices with lower market capitalization and liquidity. The
evidence of rejection of random walk behavior in stock returns of large cap
and high liquid indices are weaker as the investment horizon increases.
Non-parametric tests, which are considered appropriate when returns are
non-normal, have shown rejection of hypothesis that increments are
independent and identically distributed for the selected index returns and
these results are not sensitive to the composition of index.
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 The rejection of random walk at longer horizon implies that the information
in short-horizon is not instantly reflected in returns and thus provides
opportunity for excess returns to those who have access to information.
Later, as time horizon increases, trading strategies of those who had access
to such information began to reflect in prices leading the market towards
efficiency.
 Nonlinear dependence in returns directly contrasts the EMH since such
dependence structure provides potential opportunities for prediction. In
view that there has not been much empirical work in the case of India, the
present study has applied a set of nonlinearity tests which have different
power against different classes of nonlinear process, to uncover nonlinear
dependence in stock returns of selected indices. The tests results provide
strong evidence of nonlinear serial dependence in stock returns for full
sample period.
 However, the windowed test 112 Summary and Conclusion procedure
applied in the study shows a nonlinear structure that is not consistent
throughout the full sample period but confined to a few sub -periods thus
suggesting episodic nonlinear dependence surrounded by long periods of
pure noise. Furthermore, it is found that both negative and positive events
were associated with these nonlinear dependence periods, but negative
events had a significant effect. The episodic presence of nonlinear
dependence implies that certain events induce such nonlinear dependence.
 The major events identified were uncertainties in international oil prices,
volatile exchange rates, turbulent world markets, sub-prime crisis, global
economic meltdown and political uncertainties, especially border tensions.
Though the nonlinear dependence found in stock returns indicates
predictability of stock returns, investors find it difficult to exploit such
dependence to forecast, because it is not present throughout the sample
period but just confined to a few periods. The episodic dependence in
returns indicates that investors take time to learn about shock and adjust
their trading strategies.
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 The mean-reversion hypothesis is tested as an alternative explanation for

the behaviour of stock returns to random walk behavior. The conventional
unit root tests results may mislead in the presence of structural breaks.
Therefore, multiple structural breaks tests are carried out and two
significant structural breaks in each of the index series are found.
 The test results have shown rejection of null of unit root, thus clearly
indicating trend-stationary process. The study identified the events
associated with significant structural break dates. The dot.com bubble burst
and consequent recession in the USA, bad monsoons, international oil
shocks, volatile exchange rates, sub-prime crisis and global economic
meltdown, fluctuations in foreign institutional investment, political
uncertainties including border tensions are the major events identifie d
around significant trend breaks. The study found that smaller cap indices
were more vulnerable to external shocks than large cap indices.
 The long memory in stock returns is important because it explains the
returns behavior. To detect long memory in mean returns, the study has
carried out multiple semi-parametric tests. The study has largely found the
presence of long memory in mean returns. The anti-persistence evidence
observed in index returns is not consistent.
 The findings of the study did not support the relative size proposition. In
the same fashion, this study endeavored to detect long memory in volatility.
The model estimates indicate strong evidence of long memory in volatility.
In other words, this study has found that the FIGARCH model bette r
describes the persistence of volatility than the conventional models of
volatility.
 The evidence of long memory in both mean and volatility suggests that
using linear modelling would result in misleading inferences. The evidence
of long memory suggests proper factoring of long memory volatility in
derivative pricing and risk management models.
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5.2 SUGGESTIONS:
 In this part of the chapter, keeping mind the present status of the capital
market, some specific suggestions, major areas of improvement and specific
policy programmers are elaborated.
 In the history of Indian capital market, it was observed that most of the
stock exchanges were formed as association of persons or informal
organizations. Now, as per the recommendations of Justice Khanna
Committee, the structural changes in major stock exchanges have taken
place. For instance, BSE, which was registered as nonprofit making
association of persons, has now become a corporate entity and is now being
governed as per the Companies Act. But still a lot needs to be done in this
regard. Corporatization is just one of the steps in structural change of
governing bodies of stock exchanges.
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 There are some speculative interests prevailing in the capital markets which
are purely unproductive. Investors, which are financing the enterprises
through new issue market (primary market), are real source of finance for
the enterprises. These investors form a key component in the entire capital
markets. Hence, the investors who intend to invest or regularly invest in the
primary market. Should be given representation in the governing bodies of
stock exchanges.
 Apart from this, such representation should also be there in governance of
companies as well as in regulatory authorities like SEBI. Increasing
representation of genuine investors rather than speculators would surely
provide better regulation over the companies in particular and capital
market in general.
 In the financial markets of a country, money market and capital market
form important segments. Though these markets (capital and money
markets) seem to have different characteristics and the instruments traded
in these markets are totally different from each other, there is some kind of
association among these markets. In India, as compared to the capital
markets, money markets are lagging behind as far as diversification of
products and accessibility to the investors are concerned. Normally, monas
market dealer in chart term finds while capital markets dole in loan term
find.
 Though this is the fact, in European countries money markets are also
developed and are more organized in nature and these markets are
providing push to the capital markets whenever required. In India, money
market has no much penetration among investors due to the reasons like
limited access, lack of diversification etc.
 But money market along with debt market may have the ability to provide
the help to the capital market. By increasing the market participants,
relaxing the minimum investment requirement and providing a variety of
products/services, the money market in India can be more organized and
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attractive, which would, in tum, provide the needed support to the capital
market.
 As on today, there are 19 stock exchanges in India. Initially, the number of
stock exchanges was too low which was a hindrance for small shareholders
to enter into the market. Gradually, especially after independence, the
number of stock exchanges increased. The number touched a high of 23
stock exchanges in the year 2003.
 Now 4 regional stock exchanges have been derecognized by the SEBI and
now there are 19 stock exchanges across the country. But it is interesting to
note that more than 90% of the total turnover in the entire capital markets
of a country takes place in the two premiere stock exchanges of the country
viz. BSE and NSE. There are number of stock exchanges in India with very
low turnover.
 Thus, these regional stock exchanges do not have a promising future. Due
to the technological advancement and variety of products, NSE and BSE are
the stock exchanges which are accessed by the investors. Across the
country. Therefore, there is a strong need for merger of the regional stock
exchanges. Due to this, the stock exchanges with lower turnover would be
dissolved. For regional investors, there may not be much problem as they
can have access to the other premiere stock exchanges in the country.
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5.3 CONCLUSION :
It is to bring to all your notice that the emerging market is very sensitive to
the announcements made by developed economies and it has vital impact
in developing countries. Especially in Indian capital market showed a very
few positive impact of market and the following highlights signaling us to
initiate actions to remove the stress. It is found that 26% surge in capital
mobilization from Dec-2020 to Jan-2021 in the primary market operations. In
secondary market there is a surge approximately 2.5% to 3% both Nifty50 and
Sensex points. Market capitalization also get reduced to the tune of 1% in NSE
and BSE respectively. P/E Ratio is also under stress in both Nifty50 and
Sensex to the tune of 5% which harass the market and deteriorates
overall market performances.
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The Indian capital market has undergone many changes after the challenges
and the irreparable loss faced over years. There have been massive and
revolutionary changes over years, and some significant changes that have
reduced the financial scam cases. There has been a reduction of malpractices of
trade over the years. The capital market has made tremendous progress in
terms of institution building. They have transformed and developed the lives of
investors and market intermediaries. The market has been friendlier by
boosting performance and eliminating the challenges.
Thus the capital market structure in India is complex and covers wide range of
activities. Through provision of long term loans, the capital market brings
about effective functioning of various sectors of the economy. This is very
instrumental for the economic development of a nation. FACTORS
RESPOSIBLE FOR THE GROWTH OF CAPITAL MARKRTS IN INDIA.
INTRODUCTION: ~ Capital markets deal in lending and borrowing of l ong
term and medium term funds. So, capital markets play a significant role in the
economic development of a nation. Capital markets in India have grown
considerably over the years and this has been very crucial for the n ation's
economic development. Various factors are responsible for the growth of
capital markets in India.
As India progresses on in the on new millennium, much has changed, but still
it suffers from problems. It is argued that these measures described above,
although useful for reducing systemic risks, may prove inadequate against the
backdrop of a variety of structural distortions, flawed practices, and ‘soft ’
enforcement or intervention.
The first week of January 2009 saw a biggest ever cor-porate fraud in India
made by the Satyam Computers’ founder-chairman Rambling Raju. The scamp
showed financial irregulari-ties to the tune of Rs. 7,800 crore over a period of
several years by manipulating the balance sheets of the Company in
connivance with the Company’s audit firm, the Price water-house Coopers.
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It is a tragic that being a regulator of the country’s capital market, SEBI

remained a silent spectator over the years even when it came to light that the
World Bank had banned the company for adopting unfair practices earlier. It
has now come to the light that nearly 94 p.c. of the total shown on Satyam’s
books was fake.
This means that further reforms are needed in both the banking and equity
sectors to en-sure a higher growth rate. Most importantly, the Indian capital
market has now been en-joying an international status. But we are afraid that
external shocks may spill over the Indian capital market-destabilizing the
market.
In a broad ranging review of this kind, no amount of care usually suffices to

save the authors from being found guilty of omissions - even glaring
omissions. We tried to exercise as much care as possible to ensure that we did
not miss any research done after 1977 on the Indian capital markets. Some
omissions are bound to have occurred because of reasons beyond our control.
Though we put in fair amount of effort in identifying all relevant institutions, it
is possible that we perhaps did not write to all institutions engaged in research
on the Indian capital markets.
Since only 53 institutions responded out of 118 institutions we wrote to, it is

quite possible that some unpublished research works have not been included in
the works reviewed. We can only regret such omissions. We would be grateful
to the readers of this paper if they bring to our notice s uch omissions so that
we could make the coverage more comprehensive in the next update of the
paper.
On the basis of the exercise undertaken by us, we consider it obligatory to

make some brief comments on the state of capital market research in India.
Certain areas such as arbitrage pricing theory, option pricing theory, agency
theory, and signaling theory are virtually unsearched in the Indian context.
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Besides, very little theoretical work has been done by researchers in India. A
major malady with which most of the works suffer from is the lack of
referencing. Unlike in the more developed research environments where any
academic work can be traced back to the origin by following the references
backward in time, each piece of research in India is more or less a standalone
piece. It is not unusual to come across papers without any references
whatsoever! Where references exist, they are often incomplete, besides being
only cosmetic (not quite relevant to the work), so that it may be virtually
impossible to find a common thread across different works. The situation is
hardly helped by the fact that journals in India are seldom refereed in the true
sense of the word. Considering the size, vintage and the extent of development
of the Indian capital market, the total volume of research on it appears to be
woefully modest. For example, the total number of research works (each book,
dissertation or paper counted as a work) over the 15 year span (1977-92) for
118 potential research institutions is only 180 - about 0.1 unit of work per
institution per year! A large number of works are merely descriptive or
prescriptive without rigorous analysis. If one were to apply a strict definition
of research, one may have to exclude about half of the works cited in this
paper.
Further, not only is the average research output very low but the distribution of
work done by the institutions and individuals is highly skewed. To some
extent, this skewness might have been exacerbated by the fact that the authors
of this paper have had more complete access to the works of their own
institution as compared to other institutions.
The main reason as to why Indian capital market is grossly under-researched is

perhaps because of lack of availability of databases and computing resources.
Both these limitations are being removed and we are optimistic that one is
likely to witness an explosion of work in the near future. The current interest
of foreign investors in the Indian capital market, if it is sustained, would also
help give a fillip to research.
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BIBLIOGRAPHY
Books
 M. S. Khan – ‘Capital Market and Investment Management’

 Capital Markets in India – Edited by Rajesh Chakrabarti, Sankar De.
Website
 www.capitalmarket.com
 www.investopedia.com
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A Study of Capital Market in India

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A STUDY OF CAPITAL MARKET IN INDIA

INTRODUCTION AND RESEARCH DESIGN

INTRODUCTON AND RESEARCH DESIGN

A capital market can be either a primary market or a secondary market. In a primary

counter, or elsewhere. The existence of secondary markets increases the willingness of

1.2 OBJECTIVE OF THE STUDY

1) To know the concept of capital market.

2) To know on customer due to capital market in India.

3) To study the financial position of capital market in India.

4) To give proper suggestions to following.

1.3 HYPOTHESIS OF THE STUDY

Hypothesis is a tentative proposition formulated for empirical testing. It is tentative, because

1.4 SIGNIFICANT OF THE STUDY

1.5 STATEMENT OF THE PROBLEM

1.6 SCOPE OF THE STUDY

1.7 METHODS OF DATA COLLECTION

1.7.1 Primary Data Collection

1.7.2 Secondary Data Collection

1.8 METHODS OF DATA ANALYSIS

1.9 LIMITATION OF STUDY

The study was limited to capital market.

Study was limited to secondary sources.

Difficulty in getting source of data.

This chapter include basic introduction of project and research design.

Capital market is one of important instruments in term of investment because it

The form of capital market is described as a fixed-income investment and equity

The fluctuation of capital market performance can be influenced by many factors.

Indian Capital Market before Independence

Indian Capital Market after Independence

Description: Capital markets help channelise surplus funds from savers to

2.3 NATURE OR FEATURES OF CAPITAL MARKET

1. Link between savers and investment opportunities.

2. Deals in long term investment.

4. Determinant of capital formation.

5. Government rules and regulations.

1. Link between Savers and Investment Opportunities:

2. Deals in Long Term Investment:

Capital market makes use of different intermediaries such as brokers,

4. Determinant of Capital Formation:

The activities of capital market determine the rate of capital formation in an

5. Government Rules and Regulations:

2.5 TYPES OF CAPITAL MARKET

There are two types of capital market:

Types of Capital Market

1. Origination: Origination is referred to as examine, evaluate, and process

1. Regular information about the value of security

Advantages of capital market:

 Capital market improves transnational efficiency.

Disadvantages of capital market:

 Capital market investment is very risky because of its very volatile at

Importance or Functions of Capital Market:

1. Link between savers and investors:

2. Basis for industrialization:

3. Accelerating the pace of growth:

Liquidity means convertibility into cash. Shares of the public companies

The capital market prides incentives to savers in the form of interest or

8. Stabilization of the value of securities:

A well-developed capital market comprising expert banking and non-

9. Encourages economic growth:

The capital market encourages economic growth. The various institutions

2.9 Role And Importance Of Capital Market In India

 Mobilization Of Savings And Acceleration Of Capital Formation: