Indian Capital Market: Opportunities and Challenges

Capital Market is a commonly used term. 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.

The Capital Market is regulated by Securities and Exchange Board of India (SEBI) or the U.S. Securities and Exchange Commission (SEC) that overlook the market in their jurisdiction ensuring that the investors are protected against fraud apart from other duties. The regulatory bodies lay down specific rules and regulations that must be adhered to safeguard the investors’ interest.

Categorization of the Capital Market

Based on the types of securities, the capital market is divided into two parts: The stock Market/Share Market and the Bond Market

Stock Market: A share market or the equity market is a public entity where company stocks are traded. It is the market where shares and derivatives are traded at an agreed price. For instance, BSE or Bombay Stock Exchange is one of the oldest stock exchanges and enjoys the status of being the fourth largest stock exchange in Asia. 

Bond Market: Bond Market is also known as the credit market, or fixed income market is a part of the capital market where the debt securities are bought and sold by the investors. The securities are traded in the form of bonds. 

The Indian share market is also classified as the primary market and the secondary market.

Primary Market: It is the part of the stock market where new stocks or bonds are issued by the company to raise the capital from the market. The company launches the stocks and bonds through an IPO (Initial Public Offering). 

Secondary Market: It is the part of the capital market where the already launched or the existing shares and bonds of companies are traded among investors and traders either on a securities exchange, or over-the-counter.

Challenges of the Indian Capital Market

Indian economy is one of the largest and fastest-growing economies in the world. There have been various reforms that have acted as a catalyst in the growth of the Indian economy; however, there are specific challenges that continue to block the development of the Indian economy.

Main challenges that act as a hurdle in the growth of the Indian economy are as follows:

Inflation: The rate of inflation indicates the falling purchasing power of the people of the country and the rising prices of the goods and services. Inflation happens and continues to be one of the biggest concerns of any nation, and so is the case with India. Though there have been many monetary policies and regulatory policies released by the Reserve Bank of India, inflation is still one of the biggest challenges that hamper the growth and development of the Indian Capital Market.

GDP: Gross Domestic Product or GDP is another deciding factor in the growth and development of the capital market. GDP growth of the Indian economy is highly disappointing and highlights a downward trend. The lower the GDP, the more challenging it becomes for the country. Currently, India is facing a negative GDP growth due to the pandemic spread all across the world.

Foreign Policy: A country’s foreign policy deals with Foreign Direct Investments (FDI) that a country is likely to receive. The higher the rate of the FDI flowing to the country, the better it is for the country in the short run as well as in the long run.

Education and Unemployment: A significant chunk of the Indian population falls in the bracket of unemployment, thus making unemployment another major issue that affects the Indian capital market and its growth and development. The literacy rate too plays a vital role in the growth and development of the nation. Though the literacy rate is increasing, the rate of increment is low.

Non Uniform Tax Reforms: India has non-uniformity in its tax system across the state that makes it difficult for organizations to carry out business. This has resulted in the undergrowth of the businesses. The difference in the tax rates implemented in some states across India is one of the significant challenges to carry out the business smoothly. It also accounts for the rising prices of the goods and services in the country.

Final Note

Indian market is a booming market and has a vast scope of development in sectors like Pharmaceuticals, Retail Industry, Educations, FDI, etc. FDI should be increasingly allowed to attract foreign investors by keeping our economy stable of its own and not mostly dependent on the global market is essential.

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