1.

INTRODUCTION
A capital market is a market for securities (debt or equity), where business enterprises (companies) and
governments can raise long-term funds. It is defined as a market in which money is provided for periods
longer than a year, as the raising of short-term funds takes place on other markets (e.g., the money
market). The capital market includes the stock market (equity securities) and the bond market (debt).
The capital market plays a very important role in promoting economic growth through the mobilization
of long-term savings and the savings get invested in the economy for productive purpose. The capital
market in India is a well-integrated structure and its components include stock exchanges, developed
banks investment trusts, insurance corporations and provident fund organization. It caters to the varied
needs for capital of agriculture, industrial and trading sectors of the economy. There are two important
operations carried on in these markets. The raising the new capital and Trading in the securities already
issued by the companies. The capital market deals with capital. Capital Market is generally understood
as a market for long term funds and investments in long term instruments available in this market.
Capital markets mean the market for all the financial instruments, short term and long term as so
commercial industrial and government paper.
The capital market is a market where borrowing and lending of long term funds takes place.
Capital market deals in both, debt and equity. In these markets productive capital is raised and made
available to the corporate. The governments both central and state raise money in the capital market
through the issue of government securities. Capital market refers to all the institutes and mechanisms of
raising medium and long-term funds, through various instruments available like shares, debentures,
bonds etc.
With the pace of economic reforms followed in India, the importance of capital markets has grown in
the last ten years. Corporate both in the private sector as well as in the public sector raise thousands of
crores of rupees in these markets. The governments, through Reserve Bank of India, as well as financial
institutes also raise a lot of money from these markets. The capital market serves a very useful purpose
by pooling the savings. The capital markets encourage capital formation in the country. The capital
markets mobilize savings of the households and of the industrial concerns. Such savings are then
invested for productive purposes. Capital markets also facilitate the growth of the industrial sector, as
well as the other sectors of the economy. The capital markets provide funds for the projects in backward
areas. Thus, Capital markets generate employment in the country. They also facilitate the development
of stock markets. Due to capital markets, the public has alternative sources of investment. The public
can invest not only in bank deposits, but also in shares and debentures issued by public companies. The
commercial banks and FIs provide timely financial assistance to viable sick units to overcome their
industrial sickness. The banks and FIs may also write off a part of loan, or they re-schedule the loan, so
as to offer payment flexibility to the weak units, which in turn helps the weak units to overcome
financial crisis.

Generally, the personal savings of an entrepreneur along with contributions from
friends and relatives are the source of fund to start new or to expand existing
business. This may not be feasible in case of large projects as the required
contribution from the entrepreneur (promoter) would be very large even after
availing term loan; the promoter may not be able to bring his / her share (equity
capital).Thus availability of capital can be a major constraint in setting up or
expanding business on a large scale
However, instead of depending upon a limited pool of savings of a small circle of
friends and relatives, the promoter has the option of raising money from the
public across the country by selling (issuing) shares of the company. For this
purpose, the promoter can invite investment to his or her venture by issuing offer
document which gives full details about track record, the company, the nature of
the project, the business model, the expected profitability etc.
If you are comfortable with this proposed venture, you may invest and thus
become a shareholder of the company. Through aggregation, even small
amounts available with a very large number of individuals translate into usable
capital for corporates. Your small savings of, say, even ` 5,000 can contribute in
setting up, say, a ` 5,000 crore Cement or Steel plant. This mechanism by which
corporates raise money from public is called the primary markets.
Importantly, when you, as a shareholder, need your money back, you can sell
these shares to other or new investors. Such trades do not reduce or alter the
companys capital. Stock exchanges bring such sellers and buyers together and
facilitate trading. Therefore, companies raising money from public are required to
list their shares on the stock exchange. This mechanism of buying and selling
shares through stock exchange is known as the secondary markets.
As a shareholder, you are part owner of the company and entitled to all the
benefits of ownership, including dividend (companys profit distributed to owners).
Over the years if the company performs well, other investors would like to
become owners of this performing company by buying its shares. This increase
in demand for shares leads to increase in its price. You then have the option of
selling your shares at a higher price than at which you purchased it. You can thus
increase your wealth, provided you make the right choice. The reverse is also
true!
Apart from shares, there are many other financial instruments (securities) used
for raising capital. Debentures or bonds are debt instruments which pay interest
over their life time and are used by corporates to raise medium or long term debt
capital. If you prefer fixed income, you may invest in these instruments which
may give you higher rate of interest than bank fixed deposit, because of the
higher risk. Besides, equity and debt, a combination of these instruments, like
convertible debentures, preference shares are also issued to raise capital.
If you have constraints like time, wherewithal, small amount etc. to invest in the
market directly, Mutual Funds (MFs), which are regulated entities, provide an
alternative avenue. They collect money from many investors and invest the
aggregate amount in the markets in a professional and transparent manner. The
returns from these investments net of management fees are available to you as a
MF unit holder.
MFs offer various schemes, like those investing only in equity or debt, index
funds, gold funds, etc. to cater to risk appetite of various investors. Even with
very small amounts, you can invest in MF schemes through monthly systematic
investment plans (SIP).
The institutions, players and mechanism that bring suppliers and users of capital
together, is known as capital market. It allows people to do more with their
savings by providing variety of assets thereby enhancing the wealth of investors
who make the right choice. Simultaneously, it enables entrepreneurs to do more
with their ideas and talent, facilitating capital formation.
Thus capital market mobilizes savings and channelizes it, through securities,
into preferred entrepreneurs.
It is not that the providers of funds meet the user of and exchange funds for
securities. It is because the securities offered by the users may not match the
preference of the providers of funds. There are a large variety of intermediaries
who bring the providers and user of funds together to facilitate the transactions.
The market is supervised by SEBI. It ensures supply of quality securities and
non-manipulated demand for them. It develops best market practices and takes
enforcement actions against the miscreants. It essentially maintains discipline in
the market so that the participants can undertake transaction safely.
Two types of Markets : Capital markets may be classified as primary markets and secondary markets. In
primary markets, new stock or bond issues are sold to investors via a mechanism known as
underwriting. In the secondary markets, existing securities are sold and bought among investors or
traders, usually on a securities exc hange, over-the-counter, or elsewhere.
a) Primary Market :-
Primary market is the new issue market of shares, preference shares and debentures of non-
government public limited companies and issue of public sector bonds.
b) Secondary Market
This refers to old or already issued securities. It is composed of industrial security market or stock
exchange market and gilt-edged market.

DIFFERENCE BETWEEN
Primary market

Secondary market
Deals with new securities Market for existing securities, which are
already listed
Provides additional capital to issuer
companies
No additional capital generated. Provides
liquidity to existing stock


INDIAN CAPITAL MARKET
Evolution : Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years
ago.
The Bombay Stock Exchange was inaugurated in 1899 when the brokers formally established a stock
market in
India. Thus, the Stock Exchange at Bombay was consolidated. After that more & more stock exchanges
have
emerged in India & this forms a huge capital market in India.
1. EQUITY MARKET IN INDIA
The Indian Equity Market is more popularly known as the Indian Stock Market. The Indian equity market
has become the third biggest after China and Hong Kong in the Asian region. According to the latest
report by ADB, it has a market capitalization of nearly $600 billion. As of March 2009, the market
capitalization was around $598.3 billion (Rs 30.13 lakh crore) which is one-tenth of the combined
valuation of the Asia region.
The market was slow since early 2007 and continued till the first quarter of 2009.
Stock Exchange : Stock Exchange is an Organized and regulated financial market where securities
(bonds, notes, shares) are bought and sold at prices governed by the forces of demand and supply.
The Role of Stock Exchanges : Stock exchanges have multiple roles in the economy. This may include the
following :
Raising Capital For Businesses : The Stock Exchange provide companies with the facility to raise capital
for expansion through selling shares to the investing public.
Facilitating Company Growth : A takeover bid or a merger agreement through the stock market is one of
the simplest and most common ways for a company to grow by acquisition or fusion.
Creating Investment Opportunities For Small Investors : As opposed to other businesses that require
huge capital outlay, investing in shares is open to both the large and small stock investors because a
person buys the number of shares they can afford. Therefore the Stock Exchange provides the
opportunity for small investors to own shares of the same companies as large investors.
Barometer of the Economy : At the stock exchange, share prices rise and fall depending, largely, on
market forces. Share prices tend to rise or remain stable when companies and the economy in general
show signs of stability and growth. An economic recession, depression, or financial crisis could
eventually lead to a stock market crash. Therefore the movement of share prices and in general of the
stock indexes can be an indicator of the general trend in the economy.
Speculation : The stock exchanges are also fashionable places for speculation. In a financial context, the
terms "speculation" and "investment" are actually quite specific. For instance, although the word
"investment" is typically used, in a general sense, to mean any act of placing money in a financial vehicle
with the intent of producing returns over a period of time, most ventured moneyincluding funds
placed in the world's stock marketsis actually not investment but speculation.
The Indian market has 22 stock exchanges. The larger companies are enlisted with BSE and NSE. The
smaller
and medium companies are listed with OTCEI (Over The counter Exchange of India).
Bombay Stock Exchange (BSE) : BSE is the oldest stock exchange in Asia. The extensiveness of the
indigenous equity broking industry in India led to the formation of the Native Share Brokers Association
in
1875, which later became Bombay Stock Exchange Limited (BSE).
BSE is widely recognized due to its pivotal and pre-eminent role in the development of the Indian capital
market.
In 1995, the trading system transformed from open outcry system to an online screen-based order-
driven trading
system.



the book building process and brought in transparency in IPO issuance.

-broking).
BSE has a nation-wide reach with a presence in more than 450 cities and towns of India. BSE has always
been
at par with the international standards. It is the first exchange in India and the second in the world to
obtain an
ISO 9001:2000 certifications.
The equity market capitalization of the companies listed on the BSE was US$1.63 trillion as of December
2010,
making it the 4th largest stock exchange in Asia and the 8th largest in the world. The BSE has the largest
number of listed companies in the world.
As of June 2011, there are over 5,085 listed Indian companies and over 8,196 scrips on the stock
exchange, the
Bombay Stock Exchange has a significant trading volume. Though many other exchanges exist, BSE and
the
National Stock Exchange of India account for the majority of the equity trading in India.
National Stock Exchange (NSE) : With the liberalization of the Indian economy, it was found inevitable to
lift
the Indian stock market trading system on par with the international standards. On the basis of the
recommendations of high powered Pherwani Committee, the National Stock Exchange was incorporated
in
1992 by Industrial Development Bank of India (IDBI), Industrial Credit and Investment Corporation of
India
(ICICI), Industrial Finance Corporation of India (IFCI), all Insurance Corporations, selected commercial
banks
and others.
Trading at NSE takes place through a fully automated screen-based trading mechanism which adopts the
principle of an order-driven market. Trading members can stay at their offices and execute the trading,
since they are linked through a communication network. The prices at which the buyer and seller are
willing to
transact will appear on the screen. When the prices match the transaction will be completed and a
confirmation
slip will be printed at the office of the trading member.
NSE has several advantages over the traditional trading exchanges. They are as follows :

-market operations are
streamlined coupled with the countrywide access to the securities.

mechanism can be done away with greater operational efficiency and informational transparency in the
stock market operations, with the support of total computerized network.
Over The Counter Exchange of India (OTCEI) : The traditional trading mechanism prevailed in the Indian
stock markets gave way to many functional inefficiencies, such as, absence of liquidity, lack of
transparency,
unduly long settlement periods and benami transactions, which affected the small investors to a great
extent. To
provide improved services to investors, the country's first ring less, scrip less, electronic stock exchange -
OTCEI - was created in 1992 by country's premier financial institutions - Unit Trust of India (UTI),
Industrial
Credit and Investment Corporation of India (ICICI), Industrial Development Bank of India (IDBI), SBI
Capital
Markets, Industrial Finance Corporation of India (IFCI), General Insurance Corporation and its
subsidiaries and
CanBank Financial Services.
Compared to the traditional Exchanges, OTC Exchange network has the following advantages :

lesser risk of intermediary charges.
-based scrip less trading.
the exact
price at which she/he is trading.

Derivative Markets : The emergence of the market for derivative products such as futures and forwards
can be traced back to the willingness of risk-averse economic agents to guard themselves against
uncertainties arising out of price fluctuations in various asset classes. This instrument is used by all
sections of businesses, such as corporate, SMEs, banks, financial institutions, retail investors, etc.
According to the International Swaps and
Derivatives Association, more than 90 percent of the global 500 corporations use derivatives for hedging
risks in interest rates, foreign exchange, and equities.
Three broad categories of participantshedgers, speculators, and arbitragerstrade in the derivatives
market.
ommunity dealing
with the underlying asset to a future instrument on a regular basis. They use futures or options markets
to reduce or eliminate this risk.
assets price. Futures and options contracts can give them an extra leverage due to margining system.
markets. For example, when they see the futures price of an asset getting out of line with the cash price,
they will take offsetting positions in the two markets to lock in a profit.
2. DEBT MARKET IN INDIA
Debt market refers to the financial market where investors buy and sell debt securities, mostly in the
form of
bonds. These markets are important source of funds, especially in a developing economy like India. India
debt
market is one of the largest in Asia.
The most distinguishing feature of the debt instruments of Indian debt market is that the return is fixed.
This
means, returns are almost risk-free. This fixed return on the bond is often termed as the 'coupon rate' or
the
'interest rate'. Therefore, the buyer (of bond) is giving the seller a loan at a fixed interest rate, which
equals to
the coupon rate.
3.1. Classification of Indian Debt Market
Indian debt market can be classified into two categories :
Government Securities Market (G-Sec Market) : It consists of central and state government securities. It
means that, loans are being taken by the central and state government. It is also the most dominant
category in the India debt market.
Bond Market : It consists of Financial Institutions bonds, corporate bonds and debentures and Public
Sector Units bonds. These bonds are issued to meet financial requirements at a fixed cost and hence
remove uncertainty in financial costs.
Advantages : The biggest advantage of investing in Indian debt market is its assured returns. The returns
that the market offer is almost risk-free (though there is always certain amount of risks, however the
trend says that return is almost assured). Safer are the government securities. On the other hand, there
are certain amounts of risks in the corporate, FI and PSU debt instruments. However, investors can take
help from the credit rating agencies which rate those debt instruments.
Another advantage of investing in India debt market is its high liquidity. Banks offer easy loans to the
investors against government securities.
Disadvantages : As there are several advantages of investing in India debt market, there are certain
disadvantages as well. As the returns here are risk free, those are not as high as the equities market at
the same time. So, at one hand we are getting assured returns, but on the other hand, we are getting
less return at the same time.
Retail participation is also very less here, though increased recently.
3.2. Private Corporate Debt Market
The private corporate debt market provides an alternative means of long-term resources (alternative to
financing by banks and financial institutions) to corporate. Corporates in India have traditionally relied
heavily on borrowings from banks and financial institutions (FIs) to finance their investments. Equity
financing was also used, but largely during periods of surging equity prices. However, bond issuances by
companies have remained limited in size and scope. Given the huge funding requirements, especially for
long-term infrastructure projects, the private corporate debt market has a crucial role to play and needs
to be nurtured.
3.3. Private Placement Market in India
In private placement, resources are raised privately through arrangers (merchant banking
intermediaries) who place securities with a limited number of investors such as financial institutions,
corporate and high net worth individuals. Under Section 81 of the Companies Act, 1956, a private
placement is defined as an issue of shares or of convertible securities by a company to a select group of
persons. An offer of securities to more than 50 persons is deemed to be a public issue under the Act.
Corporate access the private placement market because of its certain inherent advantages. First, it is a
cost and time-effective method of raising funds. Second, it can be structured to meet the needs of the
entrepreneurs.
Third, private placement does not require detailed compliance of formalities as required in public or
rights issues.
The private placement market was not regulated until May 2004. In view of the mushrooming growth of
the market and the risk posed by it, SEBI prescribed that the listing of all debt securities, irrespective of
the mode of issuance, i.e., whether issued on a private placement basis or through public/rights issue,
shall be done through a separate listing agreement. The Reserve Bank also issued guidelines to the
financial intermediaries under its purview on investments in non-SLR securities including, private
placement. In June 2001, boards of banks were advised to lay down policy and prudential limits on
investments in bonds and debentures, including cap on unrated issues and on a private placement basis.
The policy laid down by banks should prescribe stringent appraisal of issues, especially by non-borrower
customers, provide for an internal system of rating, stipulate entry-level minimum ratings/quality
standards and put in place proper risk management systems.

ROLE AND IMPORTANCE OF CAPITAL MARKET IN INDIA :-
Capital market has a crucial significance to capital formation. For a speedy economic development
adequate capital formation is necessary. The significance of capital market in economic development is
explained below :-

Mobilisation Of Savings And Acceleration Of Capital Formation :-
In developing countries like India the importance of capital market is self evident. In this market, various
types of securities helps to mobilise savings from various sectors of 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 institution encourages people to invest in productive
channels. Thus it stimulates industrial growth and economic development of the country by mobilising
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 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 preparation of feasibility reports, identifying growth potential and
training entrepreneurs in project management, the financial intermediaries in capital market play an
important role.
Reliable Guide To Performance :-
The capital market serves as a reliable guide to the performance and financial position of corporates,
and thereby promotes efficiency.
Proper Channelisation Of Funds :-
The prevailing market price of a security and relative yield are the guiding factors for the people to
channelise their funds in a particular company. This ensures effective utilisation 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 grant of
long term and medium term loans to entrepreneurs, provision of underwriting facilities, assistance in
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 makes possible to generate foreign capital. Indian firms are able to generate capital
funds from overseas markets by way of bonds and other securities. Government has liberalised Foreign
Direct Investment (FDI) in the country. This not only brings in 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.
Revival Of Sick Units :-
The Commercial and Financial Institutions provide timely financial assistance to viable sick units to
overcome their industrial sickness. To help the weak units to overcome their financial industrial sickness
banks and FIs may write off a part of their loan.
SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI) :-
Initially SEBI was a non statutory body without any statutory power. However in 1995, the SEBI was
given
additional statutory power by the Government of India through an amendment to the securities and
Exchange
Board of India Act 1992. In April, 1998 the SEBI was constituted as the regulator of capital market in
India
under a resolution of the Government of India.
The basic objectives of the Board were identified as :

Securities Market;


In 2002, SEBI is further empowered to do the following:-
1. To file complaints in courts and to notify its regulations without prior approval of government.
2. To regulate issue of capital and transfer of securities.
3. To impose monetary penalties on various intermediaries and other participants for a specified range
of violations.
4. To issue direction to and to call for documents from all intermediaries.

ROLE I POWERS AND FUNCTIONS OF SEBI :-
1. Protection Of Investor's Interest :-
SEBI frames rules and regulations to protect the interest of investors.
It monitors whether the rules and regulations are being followed by the concerned parties i.e., issuing
companies, mutual funds, brokers and others. It handles investor grievances or complaints against
brokers, securities issuing companies and others.
2. Restriction On Insider Trading :-
SEBI restricts insider trading activity. It prohibits dealing, communication or counselling on matters
relating to insider trading. SEBIs regulation states that no insider (connected with the company) shall -
either on his own behalf or on behalf of any other person, deal in securities of a company listed on any
stock exchange on the basis of any unpublished price sensitive information.
3. Regulates Stock Brokers Activities :-
SEBI has also laid down regulations in respect of brokers and sub-broker. No brokers or sub-broker can
buy, sell or deal in securities without being a registered member of SEBI. It has also made compulsory
for brokers to maintain separate accounts for their clients and for themselves. They must also have their
books audited and audit reports filed with SEBI.
4. Regulates Merchant Banking :-
SEBI has laid down regulations in respect of merchant banking activities in India. The regulations are in
respect of registration, code of conduct to be followed, submission of half-yearly results and so on
5. Dematerialisation Of Shares :-
Demat of shares has been introduced in all the shares traded on secondary stock markets as well as
those issued to public in prirriary markets. Even bonds and debentures are allowed in demat form.
6. Guidelines On Capital Issues :-
SEBI has framed necessary guidelines in connection with capital issues. The guidelines are applicable to
:- First Public Issue of New Companies, First Public Issue by Existing Private / Closely held Companies,
Public Issue by Existing Listed Companies.
7. Regulates Working Of Mutual Funds :-
SEBI regulates the working of mutual funds. SEBI has laid down rules and regulations that are to be
followed by mutual funds. SEBI may cancel the registration of a mutual fund, if it fails to comply with the
regulations.
8. Monitoring Of Stock Exchanges:-
To improve the working of stock markets, SEBI plays an important role in monitoring stock exchanges.
Every recognised stock exchange has to furnish to SEBI annually with a report about its activities during
the previous year.
9. Secondary Market Policy :-
SEBI is responsible for all policy and regulatory issues for secondary market and new investments
products. It is responsible for registration and monitoring of members of stock exchanges,
administration of some of stock exchanges and monitoring of price movements and insider trading.
10. Investors Grievances Redressal :-
SEBI has introduced an automated complaints handling system to deal with investor complaints. It assist
investors who want to make complaints to SEBI against listed companies.
11. Institutional Investment Policy :-
SEBI looks after institutional investment policy with respect to domestic mutual funds and Foreign
Institutional Investors (FIIs). It also looks after registration, regulation and monitoring of FIls and
domestic mutual funds.
12. Takeovers And Mergers :-
To protect the interest of investors in case of takeovers and mergers SEBI has issued a set of guidelines.
These guidelines are to be followed by corporations at the time of takeovers and mergers.
POLICY MEASURES BY SEBI :-
1) Entry Norms :-
SEBI has issued various guidelines for tightening the entry norms for companies accessing capital
market.
2) Norms For Share Transfer :-
SEBI has tightened the norms for transfer of shares among group companies and takeover of companies.
3) Penal Margins :-
SEBI has introduced imposition of penal margin on net undelivered portion at the end of settlement.
4) Screen Based Trading :-
SEBI allowed stock exchanges to expand their online screen based trading terminals to-locations outside
their jurisdiction subject to conditions.
5) Intermediaries :-
SEBI registers and regulates the working of stock brokers, sub-brokers, share transfer agents, trustee of
trust funds, registrars to an issue, merchant banks, underwriters and other intermediaries who may be
associated with securities market.
6) Prohibition Of Fraudulent And Unfair Practices :-
SEBI regulates prohibition of Fraudulent and unfair trade practices which have imposed prohibition
against market manipulators and unfair practices relating to securities.
7) Steps To Improve Corporate Governance :-
Sufficient disclosures are made mandatory for companies at the stage of public issue. Listed companies
are required to make disclosures on continuing basis on dividend, bonus etc.
8) Comprehensive Risk Management And Improvement In Disclosure :-
In July 2002, SEB| set up a system EDIFAR (Electronic Data Information Filing And Retrieval) through
which firms would electronically file mandatory disclosures to SEBI and these documents would be
available to individuals across the country over the Internet, with a near-zero delay.
9) Raising Funds From Abroad :-
Indian companies are allowed to raise funds from abroad, through American / Global Depository
Receipts, Foreign Currency Convertible Bonds.and External Commercial Borrowings.
10) Norms For Custodian Of Securities And Depositories :-
SEBI notified two regulations namely, Custodian of Securities Regulation, and Depositories and
Participant Regulations.
REFORMS IN CAPITAL MARKET OF INDIA
The major reform undertaken in capital market of India includes :
Establishment of SEBI : The Securities and Exchange Board of India (SEBI) was established in 1988. It got
a
legal status in 1992. SEBI was primarily set up to regulate the activities of the merchant banks, to control
the
operations of mutual funds, to work as a promoter of the stock exchange activities and to act as a
regulatory
authority of new issue activities of companies.
Establishment of Creditors Rating Agencies : Three creditors rating agencies viz. The Credit Rating
Information Services of India Limited (CRISIL - 1988), the Investment Information and Credit Rating
Agency
of India Limited (ICRA - 1991) and Credit Analysis and Research Limited (CARE) were set up in order to
assess the financial health of different financial institutions and agencies related to the stock market
activities. It
is a guide for the investors also in evaluating the risk of their investments.
Increasing of Merchant Banking Activities : Many Indian and foreign commercial banks have set up their
merchant banking divisions in the last few years. These divisions provide financial services such as
underwriting facilities, issue organizing, consultancy services, etc.
Rising Electronic Transactions : Due to technological development in the last few years. The physical
transaction with more paper work is reduced. It saves money, time and energy of investors. Thus it has
made
investing safer and hassle free encouraging more people to join the capital market.
Growing Mutual Fund Industry : The growing of mutual funds in India has certainly helped the capital
market to grow. Public sector banks, foreign banks, financial institutions and joint mutual funds between
the
Indian and foreign firms have launched many new funds. A big diversification in terms of schemes,
maturity, etc. has taken place in mutual funds in India. It has given a wide choice for the common
investors to enter the capital market.
Growing Stock Exchanges : The numbers of various Stock Exchanges in India are increasing. Initially the
BSE was the main exchange, but now after the setting up of the NSE and the OTCEI, stock exchanges
have spread
across the country. Recently a new Inter-connected Stock Exchange of India has joined the existing stock
exchanges.
Investor's Protection : Under the purview of the SEBI the Central Government of India has set up the
Investors
Education and Protection Fund (IEPF) in 2001. It works in educating and guiding investors. It tries to
protect the
interest of the small investors from frauds and malpractices in the capital market.
Growth of Derivative Transactions : Since June 2000, the NSE has introduced the derivatives trading in
the
equities. In November 2001 it also introduced the future and options transactions. These innovative
products
have given variety for the investment leading to the expansion of the capital market.
Commodity Trading : Along with the trading of ordinary securities, the trading in commodities is also
recently
encouraged. The Multi Commodity Exchange (MCX) is set up. The volume of such transactions is growing
at a splendid rate.
These reforms have resulted into the tremendous growth of Indian capital market.