A

PROJECT
ON
CAPITAL MARKET IN INDIA

(Submitted as a partial fulfillment of the requirements for B.A.LL.B (HONS)

Five Year Integrated course )
SESSION: 2019-2020
Submitted on: 09/10/2019

Submitted By: Supervised By:

Hardik Jain Miss. Archana Yadav
Roll No. 112
SEMESTER: 1st SEC: B

University Five Year Law College

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 DECLARATION

I, Hardik Jain, hereby declare that this project titled “Capital Market in India” is based on the
original research work carried out by me under the guidance and supervision of Miss Archana Yadav
The interpretations put forth are based on my reading and understanding of the original texts. The
books, articles and website etc. which have been relied upon by me have been duly acknowledged at
the respective places in the text.

For the present project which I am submitting to the university, no degree or diploma has been
conferred on me before, either in this or in any other university.

Date : 09/10/19 Hardik Jain

Semester – 1stSection - B

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 CERTIFICATE

Miss Archana Yadav Date: 09\10\2019

Assistant Professor
University five year law college
University of Rajasthan, Jaipur

This is to certify that Hardik Jain student of semester(I), section(B) of University Five
Year Law college, University of Rajasthan has carried out project title "Capital Market in India"
under my supervision. It is an investigation of a minor research project. The student has
completed research work in stipulated time and according to norms prescribed for the purpose.

Supervisor

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 ACKNOWLEDGMENT

I have written this project, “Capital Market in India” under the supervision of Miss Archana
Yadav, Faculty, University Five Year Law College, University of Rajasthan, Jaipur. His valuable
suggestions herein have not only helped me immensely in making this work but also in
developing an analytical approach this work.

I found no words to express my sense of gratitude for Director Dr. Sanjula Thanvi, and
DeputyDirector Mr. Manoj Meena and Mr. Abhishek Tiwari constant encouragement at every
step.

I am extremely grateful to librarian and library staff of the college for the support and
cooperation extended by them from time to time.

Hardik Jain

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 RESEARCH METHODOLOGY

The method which I have opted for making this project was a Doctrinal method,In
this project. I alluded various websites and books to gather knowledge about The
Economics offences and legislation.

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 INDEX
CONTENTS

Chapter Subjects Covered Page No.

no.
1 INDIAN FINANCIAL SYSTEM
1.1 INTRODUCTION
1.2 FINANCIAL SYSTEM
1.3 PRE-REFORMS PHASE
1.4 FINANCIAL SECTOR REFORMS IN INDIA
1.5 CONSTITUENTS OF INDIAN FINANCIAL SYSTEM
2 INDIAN CAPITAL MARKET

2.1 What is Capital Market?

2.2 Evolution Of Capital Market

2.3 Post-independence Scenario

2.4 Structure of Indian Capital Market

2.5 Capital Market Instruments

2.6 Significance, Role Or Function Of Capital Market

2.7 Role Of Capital Market In India’s Industrial Growth

2.8 Factors Contributing To The Growth Of Capital Market In India

3 CONCLUSION

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 CHAPTER 1
INDIAN FINANCIAL SYSTEM

INTRODUCTION.
Economic growth and development of any country depends upon a well-knit financial system.
Financial system comprises a set of sub-systems of financial institutions financial markets,
financial instruments and services which help in the formation of capital. Thus a financial system
provides a mechanism by which savings are transformed into investments and it can be said that
financial system play an significant role in economic growth of the country by mobilizing
surplus funds and utilizing them effectively for productive purpose.

The financial system is characterized by the presence of integrated, organized and regulated

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financial markets, and institutions that meet the short term and long term financial needs of both
the household and corporate sector. Both financial markets and financial institutions play an
important role in the financial system by rendering various financial services to the community.
They operate in close combination with each other.

Financial System
The word "system", in the term "financial system", implies a set of complex and closely
connected or interlined institutions, agents, practices, markets, transactions, claims, and liabilities
in the economy. The financial system is concerned about money, credit and finance-the three
terms are intimately related yet are somewhat different from each other. Indian financial system
consists of financial market, financial instruments and financial intermediation

Pre-reforms Phase
Until the early 1990s, the role of the financial system in India was primarily restricted to the
function of channeling resources from the surplus to deficit sectors. Whereas the financial system

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performed this role reasonably well, its operations came to be marked by some serious
deficiencies over the years.
The banking sector suffered from lack of competition, low capital base, low Productivity and
high intermediation cost.
After the nationalization of large banks in 1969 and 1980, the Government-owned banks
dominated the banking sector. The role of technology was minimal and the quality of service was
not given adequate importance. Banks also did not follow proper risk management systems and
the prudential standards were weak. All these resulted in poor asset quality and low profitability.
Among non-banking financial intermediaries, development finance institutions (DFIs) operated
in an over-protected environment with most of the funding coming from assured sources at
concessional terms. In the insurance sector, there was little competition.
The mutual fund industry also suffered from lack of competition and was dominated for long by
one institution, viz., the Unit Trust of India. Non-banking financial companies (NBFCs) grew
rapidly, but there was no regulation of their asset side. Financial markets were characterized by
control over pricing of financial assets, barriers to entry, high transaction costs and restrictions
on movement of funds/participants between the market segments. This apart from inhibiting the
development of the markets also affected their efficiency.

FINANCIAL SECTOR REFORMS IN INDIA

It was in this backdrop that wide-ranging financial sector reforms in India were introduced as an
integral part of the economic reforms initiated in the early 1990s with a view to improving the
macroeconomic performance of the economy. The reforms in the financial sector focused on
creating efficient and stable financial institutions and markets. The approach to financial sector
reforms in India was one of gradual and non-disruptive progress through a consultative process.
The Reserve Bank has been consistently working towards setting an enabling regulatory
framework with prompt and effective supervision, development of technological and institutional
infrastructure, as well as changing the interface with the market participants through a
consultative process. Persistent efforts have been made towards adoption of international
benchmarks as appropriate to Indian conditions. While certain changes in the legal infrastructure
are yet to be effected, the developments so far have brought the Indian financial system closer to
global standards.

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The Indian financial system has undergone structural transformation over the past decade. The
financial sector has acquired strength, efficiency and stability by the combined effect of
competition, regulatory measures, and policy environment. While competition, consolidation and
convergence have been recognized as the key drivers of the banking sector in the coming years

Constituents of Indian Financial system

Indian financial system consists of financial market, financial instruments and financial
intermediation.

FINANCIAL INSTITUTIONS

THE INDIAN
FINANCIAL SERVICES FINANCIAL FINANCIAL MARKETS
SYSTEM

FINANCIAL
INTSTRUMENTS

1) FINANCIAL INSTITUTIONS
Financial institutions are intermediaries that mobilize savings and facilitate allocation of
funds in an efficient manner.
Financial Institutions can be classified as banking and non-banking financial institutions.
Banking institutions are creators of credit while non-banking financial institutions are purveyors
of credit. In India non-banking financial institutions are the Developmental Financial institutions

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(DFIs) and Non-Banking Financial Companies (NBFCs) as well as housing finance companies
(HFCs) are the major institutional purveyors of credit.
Financial institutions can also be classified as term finance institutions such as Industrial
Development Bank of India (IDBI), Industrial credit and Investment Corporation of India
(ICICI), Industrial Finance Corporation of India (IFCI), Small Industries Development bank of
India (SIDBI) and Industrial Investment bank of India (IIBI).
Financial institutions can be specialized finance institutions like the Export Import Bank of
India (EXIM), Tourism Finance Corporation of India (TFCI), ICICI Venture, Infrastructure
development Finance Company (IDFC) and sectoral such as the National Bank for Agricultural
and Rural Development (NABARD) and National Housing Bank (NHB).
Investment institutions in the business of Mutual Funds (UTI, Public Sector and Private Sector
Mutual Funds) and Insurance activity (LIC, GC and its subsidiaries) are also classified as
financial institutions

2)FINANCIAL MARKETS
Financial markets are a mechanism enabling participants to deal in financial claims. The
markets also provide a facility in which their
demands and requirements interact to set a price
for such claims.
The main organized finance markets in India are
the Money Market and Capital Market. Money
market is for short-term securities while the
Capital Market is for long-term securities.
Financial Markets are also classified as primary and secondary markets. While primary market
deals in new issues, the secondary market is meant for trading in outstanding or existing
securities.
It's through financial markets the financial system of an economy works. The main functions of
financial markets are:

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 1. to facilitate creation and allocation of credit and liquidity;
2. to serve as intermediaries for mobilization of savings;
3. to assist process of balanced economic growth;
4. to provide financial convenience

3)FINANCIAL INSTRUMENTS

A Financial instrument is a claim against a

person or an institution for the payment at a
future date a sum of money and/or a periodic
payment in the form of interest or dividend. The
term ‘and/or’ implies that either of the payments
will be sufficient but both of them may be
promised.
Financial securities may be primary or
secondary securities. Primary securities are also
termed as direct securities as they are directly
issued by the ultimate borrowers of funds to the
ultimate savers. Primary securities include equity shares and debentures. Secondary securities are
also referred to as indirect securities, as they are issued by the financial intermediaries to the
ultimate savers. Bank deposits, mutual fund units and insurance policies are secondary securities.
Financial instruments differ in terms of marketability, liquidity, reversibility, type of
options, return, risk and transaction costs. Financial instruments help the financial markets and
the financial intermediaries to perform the important role of channelizing funds from lenders to
borrowers

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 4)FINANCIAL SERVICES

Efficiency of emerging financial system largely depends upon the quality and variety of
financial services provided by financial intermediaries. The term financial services can be
defined as "activities, benefits and
satisfaction connected with sale of
money that offers to users and
customers, financial related value".
Financial intermediaries provide
key financial services such as merchant
banking, leasing, and hire purchase,
credit-rating and so on. Financial
services rendered by financial
intermediary’s bridge the gap between
lack of knowledge on the part of
investors and increasing sophistication
of financial instruments and markets.
These financial services are vital for creation of firms, expansion and economic growth.
The financial services sector includes broking firms, investment services, national banks,
private banks, mutual funds, car and home loans, and equity market

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 CHAPTER 2

INDIAN CAPITAL
MARKET

What is Capital Market?

Capital markets are like any other markets, but differ in terms of the products traded and their
organization. Capital markets deal with the trading of securities. Capital markets provide avenue
where companies can raise funds to expand on their businesses or establish new ones by issuing
securities owned by the companies. Like businesses in the private sector, Government issue its
securities to raise funds in capital markets to build electricity damn, construct new roads, bridges
by issues.
It is an organized market mechanism for effective and efficient transfer of money capital
or financial resources from the investing class i.e. from (individual or institutional savers) to
the entrepreneur class (individual engaged in business
or services) in the private or public sectors of the
economy.

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 In a broader sense, According to Goldsmith “ The capital market of a modern economy
has two basic functions first the allocation of savings among users and investment; second the
facilitation of the transfer of existing assets, tangible and intangible among individual
economic units”.
Capital Market is generally understood as the market for long term funds. It provides long
term debt and equity finance for the government and the corporate sector. It is a best
performing markets in the world since last few years. It facilitates the transfer of capital i.e.
financial assets from one owner to another.

The rapid growth in Indian capital markets and the spread of “Equity culture” has doubtlessly
strained its infrastructure and regulatory resources. Nevertheless securities market is a watchdog
as SEBI plays a vital role in redressing investors’ grievances.

Capital Markets are mainly leaded by two major Indian exchanges BSE and NSE which 16 th &
17th rank among all the exchanges around the world in terms of market capitalization. In terms of
risk and returns the Indian those in industrialized nations. Due to such strong stock exchanges
there is a strong economic growth and a large inflow of foreign institutional investors (FIIs) was
developed truly great explosive growth rising over 3 times during last 5 years.

Evolution Of Capital Market

Indian Stock Markets are one of the oldest in Asia. Its history dates back to nearly 200 years ago.
The earliest records of security dealings in India are meagre and obscure. The East India
Company was the dominant institution in those days and business in its loan securities used to be
transacted towards the close of the eighteenth century.
By 1830's business on corporate stocks and shares in Bank and Cotton presses took place in
Bombay. Though the trading list was broader in 1839, there were only half a dozen brokers
recognized by banks and merchants during 1840 and 1850.
The 1850's witnessed a rapid development of commercial enterprise and brokerage business
attracted many men into the field and by 1860 the number of brokers increased into 60.

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In 1860-61 the American Civil War broke out and cotton supply from United States of Europe
was stopped; thus, the 'Share Mania' in India begun. The number of brokers increased to about
200 to 250. However, at the end of the American Civil War, in 1865, a disastrous slump.
At the end of the American Civil War, the brokers who thrived out of Civil War in 1874, found a
place in a street now appropriately called as Dalal Street where they would conveniently
assemble and transact business. In 1887, they formally established in Bombay, the "Native Share
and Stock Brokers' Association" which is alternatively known as “The Stock Exchange ". In
1895, the Stock Exchange acquired a premise in the same street and it was inaugurated in 1899.
Thus, the Stock Exchange at Bombay was consolidated.
There have been many fluctuations in stock market due to American war and battles in Europe.
Then there were dealing of brokers and government started. Controller of Capital Issues Act was
passed in 1947.
During such period the wealth and expenditure tax was in hands of Mr. T. T.
Krishnamachari in 1957 who was the finance minister. During such period war was occurred in
China has occurred a great fall in price of capital market. The BSE building, icon of Indian
Capital Market is called the P.J. tower in the memory. Then the planning process started in India
in 1951which gave importance to formation of institutions and markets through securities
Regulation Act 1956.After this act basic law was followed by securities markets to regulate the
share price in the market. After such regulations of SEBI scams of Harshad Mehta had occurred
in the year 1992 due to which shares in market fall down. Then to uplift the stock market mid in
-1990 Gujarat stock exchange got listed in BSE. Then in end of 1990 emergence of Ketan Parekh
and information companies and entertainment companies came into the limelight. This period
stock of software companies were most favored stock in US. Then there was a meltdown in
software stock in early 2000.
Even Multinational companies were in operation with Indian stock market this lead to
sale of fresh stock in Indian markets due to which the shares of other companies were down.
The next big boom and mass retail investors happened in 1980, with the entry of Mr. Dhirubhai
Ambani who was said to be the father of modern capital markets. Reliance public issue and
subsequent issues on various reliance companies generated huge interest. Due to reliance
shares people were aware of the share certificate that were not educated. Mr. Dhirubhai
Ambani really gave a helping hand to stock market in India.

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Post-independence Scenario
Most of the exchanges suffered almost a total eclipse during depression. Lahore Exchange was
closed during partition of the country and later migrated to Delhi and merged with Delhi Stock
Exchange.
Bangalore Stock Exchange Limited was registered in 1957 and recognized in 1963.
Most of the other exchanges languished till 1957 when they applied to the Central Government
for recognition under the Securities Contracts (Regulation) Act, 1956. Only Bombay, Calcutta,
Madras, Ahmadabad, Delhi, Hyderabad and Indore, the well established exchanges, were
recognized under the Act. Some of the members of the other Associations were required to be
admitted by the recognized stock exchanges on a concessional basis, but acting on the principle
of unitary control, all these pseudo stock exchanges were refused recognition by the Government
of India and they thereupon ceased to function.
Thus, during early sixties there were eight recognized stock exchanges in India (mentioned
above). The number virtually remained unchanged, for nearly two decades. During eighties,
however, many stock exchanges were established: Cochin Stock Exchange (1980), Uttar Pradesh
Stock Exchange Association Limited (at Kanpur, 1982), and Pune Stock Exchange Limited
(1982), Ludhiana Stock Exchange Association Limited (1983), Gauhati Stock Exchange Limited
(1984), Kanara Stock Exchange Limited (at Mangalore, 1985), Magadha Stock Exchange
Association (at Patna, 1986), Jaipur Stock Exchange Limited (1989), Bhubaneswar Stock
Exchange Association Limited (1989), Saurashtra Kutch Stock Exchange Limited (at Rajkot,
1989), Vadodara Stock Exchange Limited (at Baroda, 1990) and recently established exchanges -
Coimbatore and Meerut. Thus, at present, there are totally twenty one recognized stock
exchanges in India

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Sr.No. As on 31st 1946 1961 1971 1975 1980 1985 1991 1995
December
1 No. of 7 7 8 8 9 14 20 22
Stock Exchanges
2 No. of 1125 1203 1599 1552 2265 4344 6229 8593
Listed Cos.
3 No. of Stock 1506 2111 2838 3230 3697 6174 8967 11784
Issues of
Listed Cos.
4 Capital of Listed 270 753 1812 2614 3973 9723 32041 59583
Cos. (Cr. Rs.)
5 Market value of 971 1292 2675 3273 6750 25302 110279 478121
Capital of Listed
Cos. (Cr. Rs.)
6 Capital per 24 63 113 168 175 224 514 693
Listed Cos. (4/2)
(Lakh Rs.)
7 Market Value of 86 107 167 211 298 582 1770 5564
Capital per Listed
Cos. (Lakh Rs.)
(5/2)
8 Appreciated value 358 170 148 126 170 260 344 803
of Capital per
Listed Cos. (Lak
Rs.)

National Stock Exchange of India Limited (NSEIL).

The Table given below portrays the overall growth pattern of Indian stock markets since
independence. It is quite evident from the Table that Indian stock markets have not only grown
just in number of exchanges, but also in number of listed companies and in capital of listed
companies. The remarkable growth after 1985 can be clearly seen from the Table, and this was
due to the favouring government

Structure of Indian Capital Market

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Broadly speaking the capital market is classified in to two categories. They are the Primary
market (New Issues Market) and the Secondary market (Old (Existing) Issues Market). This
classification is done on the basis of the nature of the instrument brought in the market. However
on the basis of the types of institutions involved in capital market, it can be classified into
various categories such as the Government Securities market or Gilt-edged market, Industrial
Securities market, Development Financial Institutions (DFIs) and financial intermediaries. All of
these components have specific features to mention. The structure of the Indian capital market
has its distinct features. These different segments of the capital market help to develop the
institution of capital market in many dimensions. The primary market helps to raise fresh capital
in the market. In the secondary market, the buying and selling (trading) of capital market
instruments takes place. The following chart will help us in understanding the organizational
structure of the Indian Capital market.

1) Government Securities Market :

This is also known as the Gilt-edged market. This refers to the market for government and
semi-government securities backed by the Reserve Bank of India (RBI). There is no speculation
in securities. Huge volume of transaction can take place as because it is obligated under Banking
Regulation Act 1949.

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 CONCLUSION
Financial markets facilitate effective implementation of monetary policy by serving as a link in
the transmission mechanism between monetary policy and the real economy. In India, although
financial markets have existed for a long time, they remained relatively underdeveloped.
Concerted efforts to develop the financial markets towards global standards began in the early
1990s as a part of broader financial sector reforms
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.
The lack of an advanced and vibrant capital market can lead to underutilization of financial
resources. The developed capital market also provides access to the foreign capital for domestic
industry. Thus capital market definitely plays a constructive role in the overall development of
an economy.
The Indian financial system has undergone structural transformation over the past decade. The
financial sector has acquired strength, efficiency and stability by the combined effect of
competition, regulatory measures, and policy environment. While competition, consolidation and
convergence have been recognized as the key drivers of the banking sector in the coming years

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BIBLIOGRAPHY

SEARCH ENGINES:
• GOOGLE
• WIKIPEDIA

SITES:
 www.scribd.com
 www.investopedia.com
 www.economictimes.com
• www.sebi.gov.in
• www.rbi.org.in
• www.bseindia.com

BOOKS:
• INDIAN FINANCIAL SYSTEM – BHARTI.V.PATHAK
• MONETARY ECONOMICS: INSTITUTIONS, S.B.GUPTA,
• THEORY AND POLICY
• CAPITAL MARKET R.H. PATIL

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