Role of Capital Market


The role of capital markets is vital for inclusive growth in terms of wealth distribution and making capital safer for investors. Capital markets can create greater financial inclusion by introducing new products and services tailored to suit investors’ preference for risk and return as well as borrowers’ project needs and risk appetite. Innovation, credit counselling, financial education and proper segment identification constitute the possible strategies to achieve this. A well-developed capital market creates a sustainable low-cost distribution mechanism for multiple financial products and services across the country.

Indeed, India as an emerging economy has seen a spate of innovations in the area of financial engineering. These financial innovations are a result of number of Government regulations, tax policies, globalization, liberalization, privatization, integration with the international financial market and increasing risk in the domestic financial market. With the increased volatility in the capital market, the need for new financial innovations to hedge risk and increase returns cannot be overstated. The financial innovations in India has led to various derivative products, index based derivatives etc.

Matching the cross border expansion of Indian Companies, the Indian Capital Markets have also grown exponentially in the last few years. The growth has been in every sphere - the amount of capital raised through primary issuances, exchange trading turnovers, the market indices and market capitalization, mutual fund assets, access to foreign markets for raising funds, foreign listing and foreign institutional investment. In fact, none of this would have been possible if the Indian markets had not developed a world class market and regulatory infrastructure. The efforts of the last decade in developing an efficient market infrastructure have created a market that has made transactions transparent and settlements safer. The Indian Capital Market has come a long way from trading under the Banyan tree to internet trading.

A significant development in Indian Capital Markets have been coining by setting up of SME exchange. The SME Exchange is a welcome move for the Small and Medium Scale Enterprises. In India BSE and NSE have created SME exchanges BSESME and EMERGE respectively. Setting up of SME platform by two leading Stock Exchanges, have opened aveneues for SMEs to raise funds from the market. It is an effective booster for Small and Medium Enterprises where raising of capital is a primary concern. Creating a trading platform for SMEs would enable the growth of SMEs and thereby the growth of Economy.

In nutshell, Capital market is the heart of any economy through which the savings are channelized into effective long-term investments. A developed and vibrant Capital Market will immensely contribute towards speedy economic growth and development. Now, Indian capital market is well organized, fairly integrated, mature, modernized and demographically well diversified. The Indian equity market is one of the best in the world in terms of technology. Advances in computer and communications technology, coming together on Internet are shattering geographic boundaries and enlarging the investor class across the national boundaries.
 

Important Links

 
 
 

Disclaimer:

Information provided herein is purely for dissemination of information and creating awareness among the investors about various aspects of investing. Although due care and diligence has been taken, the Institute of Company Secretaries of India (ICSI) shall not be responsible for any loss or damage resulting from any action taken by a person on the basis of the contents hosted on the website. It may also be noted that laws/regulations governing the markets are continuously evolving, hence an investor should familiarize himself with the latest laws/ regulations by visiting the relevant websites or contacting the relevant regulatory body.