ROSHAN A PALSHIKAR, CONTACT: 9673801048 (roshanpalshikar@gmail.

com ) FYMMS VISHWAKARMA SAHAJEEVAN INSTITUTE OF MANAGEMENT, KHED DIST: RATNAGIRI

CAPITAL MARKET KEY DRIVER OF INDIAN ECONOMY

ABSTRACT
Capital market is the market for medium and long term funds. It refers to all the facilities and institutional arrangement borrowing and lending term funds. The demand for long term funds for industry, trade, agriculture and government. The central and state governments invest not only on economic overheads such as transport, irrigation and power supply but also on basic and consumer goods industries and hence require large sums from capital market. The supply of funds comes largely from individual savers, corporate savings, banks, insurance companies, specialized financial instaurations and government.

KEY CONCEPT- CAPITAL MARKET, PRIMARY MARKET, SECONDARY MARKET

INTRODUCTION
The capital market is the market for securities, where companies and governments can raise long term funds. Selling stock and selling bonds are two ways to generate capital and long term funds. Thus bond markets and stock markets are considered capital markets. The capital markets consist of the primary market, where new issues are distributed to investors, and the secondary market, where existing securities are traded. The Indian Equity Markets and the Indian Debt markets together form the Indian Capital markets. Capital market consist of three distinct segments i.e. government securities market, Corporate Debt market, the equity market. Capital market plays an important role in economic development. A sound and efficient capital market facilitates the process of capital formation and thus contributes to economic development. For a developing economy like India, debt markets are crucial sources of capital funds. The debt market in India is amongst the largest in Asia. It includes government securities, public sector undertakings, other government bodies, financial institutions, banks and companies. This paper mainly speaks about the importance or role of capital market and reforms in the capital market. Scope of the paper limited to the Indian capital market only.

KEY CONCEPT
Capital Market: A market in which individuals and institutions trade financial securities. Organizations/institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds. Thus, this type of market is composed of both the primary and secondary markets Capital Market is one of the significant aspects of every financial market. Hence it is necessary to study its correct meaning. Broadly speaking the capital market is a market for financial assets which have a long or indefinite maturity. Unlike money market instruments the capital market instruments become mature for the period above one year. It is an institutional arrangement to borrow and lend money for a longer period of time. It consists of financial institutions like IDBI, ICICI, UTI, LIC, etc. These institutions play the role of lenders in the capital market. Business units and corporate are the borrowers in the capital market. Capital market involves various instruments which can be used for financial transactions. Primary Market: A market that issues new securities on an exchange. Companies, governments and other groups obtain financing through debt or equity based securities. Primary markets are facilitated by underwriting groups, which consist of investment banks that will set a beginning price range for a given security and then oversee its sale directly to investors. The primary markets are where investors can get first crack at a new security issuance. The issuing company or group receives cash proceeds from the sale, which is then used to fund operations or expand the business. Exchanges have varying levels of requirements which must be met before securities can be sold. Once the initial sale is complete, further trading is said to conduct on the secondary market, which is where the bulk of exchange trading occurs each day. Primary markets can see increased volatility over secondary markets because it is difficult to accurately gauge investor demand for a new security until several days of trading have occurred.

Secondary Market: A market where investors purchase securities or assets from other investors, rather than from issuing companies themselves. The national exchanges - such as the National Stock Exchange and the BSE are secondary markets. Secondary markets exist for other securities as well, such as when funds, investment banks, or entities such as Fannie Mae purchase mortgages from issuing lenders. In any secondary market trade, the cash proceeds go to an investor rather than to the underlying company/entity directly.

OBJECTIVE
1. To study the concept of capital market 2. To study the role of capital market in Indian Economy 3. To study the factor affecting Capital Market 4. To study the changes in capital market after 1991 reforms.

RESEARCH METHODOLOGY
In this project, I have elaborated the concept Capital Market, Primary Market, Secondary Market and its Role, Factors and Reforms on and Indian economy by using secondary data available on this subject. I have derived information from websites, journals, magazines and books. I have incorporated this information and my own opinion on this subject to conclude on this project.

STRUCTURE OF CAPITAL MARKET IN INDIA

The capital Market, like any market, is composed of those who demand funds and those who supply funds. Indian Capital Market is broadly composed of...

CAPITAL MARKET IN INDIA

Gild edged Market

Industrial Securities Market

Developmental Financial Institutions

Financial Intermediaries

Gild-Edged Market: It deals in government and semi government securities . These securities carry fixed interest rates. The investors in government securities are mainly financial institution like commercial banks, LIC, GIC, Provident Fund, and so on. These institution often compelled by law to invest a certain percentage of their funds in these securities. Therefore, they are often referred to as the captive market for government securities. RBI plays very important role in this market.

Industrial Securities Market: It deals with shares and debentures of old and new companies. This market further divided into New Issue Market i.e. Primary Market and old issue Market i.e. Secondary Market. The Primary Market helps to raise new capital through shares and debentures. The Secondary Market deals in Securities already issued by companies. The secondary Market Operates through stock exchanges.

Developmental Financial Institution: These Institutions were setup mainly to provide medium and long term financial assistance to industries in the private sector. Thus, to provide financial assistance to industrial sector government set up the Industrial Finance Corporation of India (IFCI) in 1948, the Industrial Credit and Investment Corporation of India (ICICI) in 1955, the Industrial-Development Bank of India (IDBI) IN 1964. At the state level government set up State Financial Corporations (SFCs), State Industrial Corporations (SIDCs). Financial Intermediaries: They consist of merchant banks, mutual funds. Leasing companies, venture capital companies and others. They help in mobilizing savings and supplying funds to the capital market. Merchant banks in India manage and underwrite new issues, and advise corporate clients on fund raising and other financial aspects. Leasing companies provide finance for acquiring plant and machinery specially for small and medium sized enterprises Mutual fund mobilizes the saving of the general public and invest them in stock market.

ROLE OF CAPITAL MARKET DURING THE PRESENT CRISIS:

Mobilization of Savings:- Capital market is an important source for mobilizing idle savings from the economy. It mobilizes funds from people for further investments in the productive channels of an economy. In that sense it activate the ideal monetary resources and puts them in proper investments. Capital Formation:- Capital market helps in capital formation. Capital formation is net addition to the existing stock of capital in the economy. Through mobilization of ideal resources it generates savings; the mobilized savings are made available to various segments such as agriculture, industry, etc. This helps in increasing capital formation. Provision of Investment Avenue:- Capital market raises resources for longer periods of time. Thus it provides an investment avenue for people who wish to invest resources for a long period of time. It provides suitable interest rate returns also to investors. Instruments such as bonds, equities, units of mutual funds, insurance policies, etc. definitely provides diverse investment avenue for the public. Speed up Economic Growth and Development:- Capital market enhances production and productivity in the national economy. As it makes funds available for long period of time, the financial requirements of business houses are met by the capital market. It helps in research and development. This helps in, increasing production and productivity in economy by generation of employment and development of infrastructure. Proper Regulation of Funds:- Capital markets not only helps in fund mobilization, but it also helps in proper allocation of these resources. It can have regulation over the resources so that it can direct funds in a qualitative manner. Continuous Availability of Funds:- Capital market is place where the investment avenue is continuously available for long term investment. This is a liquid market as it makes fund available on continues basis. Both buyers and seller can easily buy and sell securities as they are continuously available. Basically capital market transactions are related to the stock exchanges. Thus marketability in the capital market becomes easy.

FACTORS AFFECTING CAPITAL MARKET IN INDIA

The capital market is affected by a range of factors. Some of the factors which influence capital market are as follows:Performance of domestic companies:The performance of the companies or rather corporate earnings is one of the factors which has direct impact or effect on capital market in a country. Weak corporate earnings indicate that the demand for goods and services in the economy is less due to slow growth in per capita income Of people . Because of slow growth in demand there is slow growth in employment which means slow growth in demand in the near future. Thus weak corporate earnings indicate average or not so good prospects for the economy as a whole in the near term. In such a scenario the investors (both domestic as well as foreign ) would be wary to invest in the capital market and thus there is bear market like situation. The opposite case of it would be robust corporate earnings and its positive impact on the capital market.

Environmental Factors:Environmental Factor in Indias context primarily means- Monsoon . In India around 60 % of agricultural production is dependent on monsoon. Thus there is heavy dependence on monsoon. The major chunk of agricultural production comes from the states of Punjab , Haryana & Uttar Pradesh. Thus deficient or delayed monsoon in this part of the country would directly affect the agricultural output in the country. Apart Capital Market from monsoon other natural calamities like Floods, tsunami, drought, earthquake, etc. Also have an impact on the capital market of a country. The Indian Met Department (IMD) on 24th June stated that India would receive only 93 % rainfall of Long Period Average (LPA). This piece of news directly had an impact on Indian capital market with BSE Sensex falling by 0.5 % on the 25th June . The major losers were automakers and consumer goods firms since the below normal monsoon forecast triggered concerns that demand in the crucial rural heartland would take a hit. This is because a deficient monsoon could seriously squeeze rural incomes, reduce the demand for everything from motorbikes to soaps and worsen a slowing economy.

Macro Economic Numbers:The macroeconomic numbers also influence the capital market. It includes Index of Industrial Production (IIP) which is released every month, annual Inflation number indicated by Wholesale Price Index (WPI) which is released every week, Export Import numbers which are declared every month, Core Industries growth rate (It includes Six Core infrastructure industries Coal, Crude oil, refining, power, cement and finished steel) which comes out every month, etc. This macro economic indicators indicate the state of the economy and the direction in which the economy is headed and therefore impacts the capital market in India. A case in the point was declaration of core industries growth figure. The six Core Infrastructure Industries Coal, Crude oil, refining, finished steel, power & cement grew 6.5% in June, the figure came on the 23 rd of July and had a positive impact on the capital market with the sensex and nifty rising by 388 points & 125 points respectively.

Global Cues:In this world of globalization various economies are interdependent and interconnected. An event in one part of the world is bound to affect other parts of the world , however the magnitude and intensity of impact would vary. Thus capital market in India is also affected by developments in other parts of the world i.e. U.S. , Europe, Japan , etc. Global cues includes corporate earnings of MNCs, consumer confidence index in developed countries, jobless claims in developed countries, global growth outlook given by various agencies like IMF, economic growth of Capital Market major economies, price of crude oil, credit rating of various economies Given by Moodys, S & P, etc. An obvious example at this point in time would be that of subprime crisis & recession. Recession started in U.S. and some parts of the Europe in early 2008 .Since then it has impacted all the countries of the world developed, developing, and less- developed and even emerging economies.

Political stability and government policies:For any economy to achieve and sustain growth it has to have political stability and pro- growth government policies. This is because when there is political stability there is stability and consistency in governments attitude which is communicated through various government policies. The vice- versa is the case when there is no political stability .So capital market also reacts to the nature of government, attitude of government, and various policies of the government. The above statement can be substantiated by the fact the when the mandate came in UPA governments favor ( Without the baggage of left party) on May 16 2009, the stock markets on Monday , 18th May had a bullish rally with sensex closing 800 point higher over the previous days close. The reason was political stability. Also without the baggage of left party government can go ahead with reforms.

Growth prospectus of an economy:When the national income of the country increases and per capita income of people increases it is said that the economy is growing. Higher income also means higher expenditure and higher savings. This augurs well for the economy as higher expenditure means higher demand and higher savings means higher investment. Thus when an economy is growing at a good pace capital market of the country attracts more money from investors, both from within and outside the country and vice -versa. So we can say that a growth prospect of an economy does have an impact on capital markets.

Investor Sentiment and risk appetite:Another factor which influences capital market is investor sentiment and their risk appetite .Even if the investors have the money to invest but if they are not confident about the returns from their investment, they may stay away from investment for some time. At the same time if the investors have low risk appetite, which they were having in global and Indian capital market some four to five months back due to global financial meltdown and recessionary situation in U.S. & some parts of Capital Market Europe, they may stay away from investment and wait for the right time to come.

REFORMS IN CAPITAL MARKET OF INDIA

The major reforms 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. The SEBI was set up with the fundamental objective, "to protect the interest of investors in securities market and for matters connected therewith or incidental thereto." The main functions of SEBI are: To regulate the business of the stock market and other securities market. To promote and regulate the self regulatory organizations. To prohibit fraudulent and unfair trade practices in securities market. To promote awareness among investors and training of intermediaries about safety of market. To prohibit insider trading in securities market. To regulate huge acquisition of shares and takeover of companies.

Establishment of Creditors Rating Agencies:Three creditors rating agencies i.e. 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. It has proved as a helping hand to factors related to the capital market. Candid Performance of Indian Economy:In the last few years, Indian economy is growing at a good speed. It has attracted a huge inflow of Foreign Institutional Investments (FII). The massive entry of FIIs in the Indian capital market has given good appreciation for the Indian investors in recent times. Similarly many new companies are emerging on the horizon of the Indian capital market to raise capital for their expansions. Rising Electronic Transactions:Due to technological development in the last few years. The physical transaction with more paper work is reduced. Now paperless transactions are increasing at a rapid rate. 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. Insurance Sector Reforms:Indian insurance sector has also witnessed massive reforms in last few years. The Insurance Regulatory and Development Authority (IRDA) were set up in 2000. It paved the entry of the private insurance firms in India. As many insurance companies invest their money in the capital market, it has expanded. 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. Apart from these reforms the setting up of Clearing Corporation of India Limited (CCIL), Venture Funds, etc., have resulted into the tremendous growth of Indian capital market.

CONCLUSION
The Indian capital market has witnessed a radical transformation within a period of just over one decade. During the early part of 1990s the ranking of Indian capital market with reference to global standards of efficiency, safety, market integrity etc., was low. With reference to the risk indices, in particular, the Indian capital market was regarded as one of the worst as it figured almost at the bottom of the league. However, the scenario has now completely changed. Because of extensive capital market reforms carried out over the period of the last one decade or so, the setting up and extension of activities of NSE. And steps taken by SEBI, the Indian capital market is now ranked in the top league. In fact, it is now considered to be way ahead of many developed country capital markets.

BIBLIOGRAPHY
Business economics- III , by Johnson and chatterjee Financial Markets and Services, by Gorden and Natarajan Economic survey 2006-07 Financial Institutions and Market , by L.M Bole Http://airwebworld.com/articles/index.php?article=976 www.onlineencyclopedia.co.in Role of capital market in india-rahul shah , santosh jangid Samir k. Barua, v. Raghunathan, jayanth r. Varma indian institute of management, ahmedabad-380015 Http://www.ftkmc.com/equities.html http://www.citeman.com/6011-reforms-of-capital-market.html#ixzz1qRGMVnBJ http://www.nseindia.com/ www.investopedia.com/search/default.aspx?q=capital market#axzz1qgTAFH