DEVELOPMENTS IN INDIA’S CAPITAL MARKETS

India’s improving

macroeconomic fundamentals, greater integration with the world economy, increasing corporate profitability and competitiveness is becoming apparent through the developments in its capital market. The likely benefits of investing in a growing economy have inspired the

overseas investors to invest in Indian markets. That is specifically so with the Foreign Institutional Investors (FIIs) i.e. pension funds, mutual funds, investment trusts, asset management companies, nominee companies and institutional portfolio managers who have been investing heavily in the country’s capital markets. The country’s capital market registered a net inflow of US$ 7.97 billion from FIIs in 2006 up from US$ 0.7 billion in 2002. The rank of FIIs registered with the market regulator Securities and Exchange Board of India (“SEBI”) have burgeoned to 1,000 from 488 two years ago. This along with larger participation of domestic investors resulted into a sharp upward movement of Sensex, the benchmark index of Bombay Stock Exchange in India’s commercial capital Mumbai. The 21-year-old Sensex that took 10 years to climb from 1,000 points (in 1990) to touch 6,000 points (in 2000) rallied to the 10,000 mark in February, 2006. Sensex that yield a spectacular return of 48.06 per cent in 2006 maintained its upward journey in 2007 also and touched the 15000 mark in the month of July. The capital market in India is experiencing the next bullish run triggered by the 50 basis point rate cut by the US Fed in mid September. The rate cut considerably eased the liquidity situation which resulted in global investors pumping in billions of dollars in growth markets like India.

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In the 10 months up to October, FII flows have been equivalent to a little over a quarter of the total foreign portfolio that’s entered Indian equities in the past 14 years (since the FIIs first stepped in India in 1993). Boosted by robust flows from foreign institutional investors of US $ 7 billion between September 19 and October 11, the benchmark index pole vaulted from 15,500 to close to 18,850, a jump of 22 per cent in just 16 trading sessions. The unprecedented 2000 point increase of the index in merely two weeks generated worries about a possible market bubble. Sensex crossed its 20,000 marks on 29th of October and the surge is still continuing. Amidst all these buoyant market movements, there have been apparent efforts from the market regulator to protect the interest of the investors. A slew of proactive capital market regulation by SEBI has ensured the integrity of Indian markets and this has certainly been a major factor underpinning investor confidence.