Globalisation on the

Indian Investment
Markets

Group 10
Jeet Juneja F20
Himanshu Garg F14
Sagar Sonkar F44
Bratin Dutta F57

Introduction
The term Globalisation means integration of
economies and societies through cross-country
flows of information, ideas, technologies, goods
& services, capital, finance and people
Globalisation occupies a significant place in the
economic development of any country as it
promotes faster economic growth
Experiences showed that globalised countries
financial markets improved their economic
performance at a much faster pace

The scenario postindependence

Most of the public sector units were financed by
government and banks
Bank intermediation was very strong
Stock market trading was lacking
professionalism
In 1990s due to the deterioration of foreign
exchange reserves and economic instability, we
were forced to devalue our currency and went
for liberalization, privatization and globalisation
measures especially in the financial sector

The changes
Industrial licensing was made easy
Foreign Institutional Investors (FIIs) were
allowed to participate in the equity market
SEBI was established on par with Securities
Exchange Commission (SEC) of the USA
Abolition of government control on pricing
of securities
Exemption of dividend income from income
tax

Contd.
Setting up of regulatory bodies like SEBI

and various credit rating agencies

Step towards scrip less trading systems
Computerization of dealings
Quicker settlement system (now T + 2)
Setting up of NSDL and CSDL
depositories that made investing more
efficient, transparent and investor friendly

Major findings
The exponential growth rate of real GDP
before globalisation, say 1991 was 5.3 and
post globalisation showed 6 per cent growth
rate
The total risk in investment in equities can be
reduced by investing in diversified portfolio
Market Capitalisation ratio has touched 1.11
per cent in 2004-05 and now it is on par with
international standards

Findings about the

primary markets
Resource mobilization through primary capital market
has experienced a substantial jump in nineties due to
globalisation of stock market, spurting from Rs. 14219
crores in 1990-1991 to Rs.105944 crores in 2004-05
The pattern of resource mobilization through primary
market has undergone a sea change with the private
placement route eclipsing the Initial Public offer (IPO)
route
The corporate sectors dependence on the securities
market for external financing increased from 19.35 per
cent in 1990-91 to 33.58 per cent in 1999-2000

Resource mobilization through the

Primary market ( BSE & NSE )
Rs. Crores
Mode

2009-2010

2010-2011

2011-2012

2012-2013

Debt

2500

9451

35611

4974

Equity
Of which
IPOs
No. of IPOs
Mean IPO
size

46736
24696
39
633

48654
35559
53
671

12857
5904
34
174

13050
6043
20
302

Private
Placement

212653

218785

261282

263644

Total

261871

309750

281667

276890SEBI
Source:

Date

Event

1992

SEBI Act established

1993

NSE was recognized as a stock exchange

1995

BSE On line Trading (BOLT) system introduced

1997

BOLT expanded nation wide

1999

Central Depository Services Ltd. (CDSL) was

established

1999

Interest rate swaps(IRS)/Forward Rate

Agreement(FRA) allowed

2000

Equity Derivatives Introduced

2001

Stock Options launched

2002

Fungibility of ADR/GRD

2007

Launch of Indian Corporate Debt market

2008

Currency Derivatives introduced

2009

BSE Launches BSE StAR MF Mutual Fund trading

platform

2009

Launch of clearing and settlement of Corporate Bonds

2010

Commencement of Volatility Index

2012

Launch of BSE - SME Exchange Platform

Other changes in the

Indian capital markets
An empirical study has shown that capital
market reforms that started in the 1990s
contributed to the development of the
stock markets in India
Market capitalization ratio, value traded
ratio and turnover ratio have increased
These indicators together with the
decline in volatility are an evidence of
stock market development in India

A study by Mckinsey on
the changes
Mckinsey points out that till 2001, the
reforms had not produced much
financial deepening
The total value of the financial assets
never exceeded the GDP by more than
10% till then
Then deepening started in a major way
and by 2004, the total value of the
financial assets stood at a respectable
160% of the GDP which further
exploded to 305% in 2007

Studys findings
continued..
This meant a CAGR of about 11% between 2001 and
2007
During this period the equity markets showed the most
stunning increase( from 23% of GDP to 165%, a CAGR
of 39%)
corporate bonds showed equally remarkable gains but
on an insignificant base (1% to 7.3%; a CAGR of 39%)
(Chakrabarti, 2010)
Government securities showed a relatively moderate
rise (27% to 63%; a CAGR of 15%) while Bank deposits
rose at a snails pace (57% to 69%; a CAGR of 3%).

Low penetration levels of

the financial services sector
There needs to be a rigorous effort to adequately
extract the full potential of Indias savings, which
stands at an impressive 34% of the GDP
As on July 2011, only 1% of households had invested
in mutual funds and a mere 0.72% of households in
equity shares
The corporate bond market has remained relatively
underdeveloped.
This has been the result of dominance of the banking
system combined with the weaknesses in market
infrastructure and the inherent complexities.

THE SLOW DOWN AFTER THE

GLOBAL FINANCIAL CRISIS
Ever since the Indian Economy was liberalized, India
has seen a tremendous growth of its capital markets
with close to 5,000 Initial Public offerings (IPOs)
In the year 2010, India ranked 4th with respect to the
amount of capital raised, contributing to 3.7% of
Global IPO share, China contributed to almost 47% of
the Global Capital raised in IPOs
This seemed to indicate that the Indian Capital Market
is losing its growth momentum in the post crisis
financial world and that china is increasingly becoming
popular with respect to attracting foreign capital

Trends in Foreign
US $
Investment
Inflows
Million

Future Prospects
After the shock of the global financial crisis, emerging
as well as developed economies are trying to figure out
whether openness is necessary for a healthy financial
sector
India has a choice between two pathways, as to how to
progress in the future
The two pathways are, either to retreat from the
current position of further liberalizing the financial
sector, which would eventually result in lower growth,
or either to advance forward with gradually
liberalizing but at the same time regulating and
controlling the cross border capital flows

Future Prospects
continued
The retreat scenario is one which is
shaped by a high degree of risk aversion
one that may squeeze the financing needed
for investment in innovation and R&D,
business expansion, infrastructure, housing,
education, and human capital development
If the trend of retreat is to be chosen, the
value of financial assets relative to GDP
would remain flat or even decline by 2020

Future Prospects
continued
Greater integration of the Indian capital market

offers four principal, and inter- related, benefits:Better allocation of capital

more efficient risk sharing
enhanced portfolio diversification and lower cost of
capital
Greater participation from Global Institutional
Investors assures greater liquidity and enhanced
reputation of the market, leading to better
valuations of companies listed on Indian Exchanges

Thank You