Page 270 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Indian Economic Policy
Hitesh Jhanji, Lovely Professional University

Notes
Unit 21: Capital Market in India and Working of SEBI

CONTENTS
Objective
Introduction
21.1 Capital Market in India
21.2 Development Financial Institutions (DFIs)
21.3 Non-Banking Finance Companies (NBFCs)
21.4 Stock Exchange in India
21.5 SEBI and Capital Market Reforms
21.6 Summary
21.7 Key-Words
21.8 Review Questions
21.9 Further Readings

Objectives

After reading this Unit students will be able to:
• Explain the Capital Market in India and Working of SEBI.
• Discuss the Working of SEBI.
Introduction

The capital market is a market for long-term debt as well as equity shares as compared to the money
market which is a market for short-term debt. This market issues debt and equity instruments to the
public as well as placed privately to a select group of investors. This market includes stock exchanges
also where most of these instruments are traded. Here, we have broadly two segments : primary
market and secondary market. The market for new issues of these securities is called the primary
market. After the securities are issued, they are traded in the secondary market. We have three main
categories of participants in the capital market. While the issuers are the borrowers or deficit savers,
who issue securities to raise funds, the investors, who are surplus savers, deploy their savings by
subscribing to these securities. The third category is the intermediaries who are the agents who match
the needs of users and suppliers of funds for a commission. In the primary market, the corporate
sector as well as the Central Government and State Governments issue securities. The secondary
market provides the much needed liquidity and information on asset prices for the investor. In India,
the regulatory authority that regulates both the primary and secondary markets is the Securities and
Exchange Board of India (SEBI). SEBI protects the interests of the investors in securities and to promote
the development of the securities market. In India, stock market has a history of over 200 years but
the first organised stock exchange was set up in Bombay in 1875.
21.1 Capital Market in India

Capital market is the market for long-term funds, just as the money market is the market for short-
term funds. It refers to all the facilities and the institutional arrangements for borrowing and lending
term funds (medium-term and long-term funds). It does not deal in capital goods but is concerned
with the raising of money capital for purposes of investment.
The demand for long-term money capital comes predominantly from private sector manufacturing
industries and agriculture and from the Government largely for the purpose of economic development.

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