Introduction

Indian Capital market has been in existences even before Independence. It dates back
nearly 200 years ago. However in recent times Indian capital market has experienced a
change according to the market situations.
Indian Capital market has major faces like Bombay Stock Exchange which was
established in the year 1899 by few brokers. There after many stock exchanges were
established. Like National Stock Exchange, Calcutta Stock Exchange and many other
regional stock exchanges.
The Indian Equity market is popularly known as Indian stock market. Indian stock market
has become third largest after China and Hong Kong in Asian region. Recent market
reports say that Indian Capital Market has capitalization of nearly $600 billion, which
makes up to 30 lakh million of rupees, which is one-tenth of the combined valuation of
the Asia region.
However Indian Capital Market is still Developing and faces many crucial challenges,
which are hindering the growth of the market. Many preventive measures are taken by
government and even by SEBI, but the yields are not so satisfactory enough.
The following study covers the challenges faced by capital markets and the measures to
overcome them.

Importance of Indian Capital Market

a. Capital Markets Efficiently Direct Capital to Productive Uses.
Capital market directs the stagnated capital or the funds with the savers or
investors to the productive channels. Instead of retaining the funds in the bank
accounts and earning nominal rate of returns, capital markets can even give
returns more than 50%.

b. Facilitates capital formation.

Capital markets make use of funds efficiently. The money invested in capital
markets is used by companies, which in turn try and earn profit and give good
returns to the investors, which facilitates capital formation.

c. Facilitates

availability

of

funds

for

the

companies

and

Government.
Capital markets make funds available to the companies and government. Either
these users use these funds either to expand or diverse business or, government
uses these funds to develop infrastructure or promote any developmental scheme.

d. Can be an effective tool against inflation.

Capital markets can act as an effective tool against inflation, as in inflation prices
of goods keep on increasing and the value of money is degrading. Capital market
helps in growth of money much faster than bank accounts. Leading to the
availability of the funds with the public.

Challenges faced by Indian Capital Market

1. Inadequate infrastructure
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Indian capital market is still in the stage of development.

Excluding few stock exchanges in India, others Indian stock
exchanges lack with infrastructural facilities.
2. Concentrated restructuring
It is observed that the development of Indian capital market is
concentrated in few areas of the country, like Delhi, Mumbai,
Calcutta, Gujarat etc. Rest all places have less of exposure to the
capital market.
3. New regulatory reforms
New regulatory reforms by SEBI have made it difficult for the
small companies to make it onto the capital market. Small
companies fail to get an entry in the stock exchange in the early
stages of their existences.
4. Reliance on Initial Public Offering.
Indian capital market up to some extent depends on Initial Public
Offering. However in last four to five years with new technology
and online trading systems secondary market has developed to
some extent.
5. No adherence to the government framework.
Another challenge faced by Indian capital market is that of malpractices. It is
seen that many brokers do not follow the government norms regarding
transactions and other dealings.
6. Technology Limitations
Indian Capital market faces a lot of technical limitations. Even though few
stock exchanges are well equipped with the technology required but most of
them lack in technology.
7. Hacking of systems
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Even after all the preventive measures which are taken by SEBI, hacking of
computer systems continues. Sites of many stock exchanges are hacked by the
hackers and some malpractices occur
8. Influence of other markets
Indian capital market is heavily influenced by other markets in the world
economy. This results in dependence on the markets in the world economy.
9. False Identities.
Many brokers create some false identities. By doing this they try and get two
trading counter from the SEBI, which is not allowed according to law. And of
such a broker commits any crime or scam than he cannot be caught as the
identity itself is fake.

10. Political And Economic Policies

Many times political and economic policies framed at government level are
incorrect. They are non competitive or are framed without undertaking the
proper research.
11. Low Savings Rate.
Most of the people in India have low saving rate. Due to which they are left
behind. They do not have enough money to invest in the capital market.
12. Lack Of public Awareness.
People of India lack in the proper knowledge of capital markets. Due to which
they invest in wrong companies and lose their money. Due to which new
investors are also not attracted toward the capital market.
13. Scams
Scams are the biggest reason why investors hesitate to invest their money in
the capital markets. Scams create a sense of insecurity in the minds of
investors. They are afraid that they might lose their money.
14. High Trading Cost

Indian capital market is featured with high cost of transaction and other costs
and taxes. In India cost of transaction is very high, where many taxes and
services charges need to be paid by the investors.
15. Lack of Product Innovation.
Lack of product innovation in the sense there are no new products launched in
the capital markets. Same shares, same companies and same practices are
followed. Very rarely a new product comes in the markets.

Recommendation
It is recommended by many of the brokers that the capital market subject should
be included in regular syllabus from the college level itself. So that awareness can
be created within the future investors.
Also that potential investors should try and acquire knowledge of capital market
and than invest, so that the funds are utilized efficiently with good returns.
It was also found that participation from semi urban and rural areas was just 9%,
where more than 60% of the people live in small towns and villages.

Conclusion

Indian Capital market is still going through the process of development and needs

some more time for its widespread.

However many a times due to false economic decisions at the political level has

hit capital market badly.

Besides the tax structure and inflationary effects have made it difficult for the

people to take any investment decisions.

It is also observed that potential investors take a back step from investing in the

capital market just due to some rumors, without taking a expert advice.
Besides many investors invest in the capital market without having proper
knowledge of it, and ultimately losing money and getting discouraged.