Page 8 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES

Unit 1: Financial System

Notes

Caselet Outlook for Indian Financial Markets: Stocks up,
Rates Down?

ndian markets, with their increasing levels of integration with the international
markets, have not been an exception to the corrections taking place in global markets
Inow. But, as a consequence of the fact that our level of integration with the global
markets is still only "increasing" and there is yet some policy restriction with respect to
seamless flow of capital between the local and international markets, there have been
differing reactions in various segments of the financial markets in India.

Equities have fallen quite sharply as the international exposure of the domestic stock
markets is relatively much higher than that of the other key financial market segment,
namely, debt.
The debt markets, dominated by government debt and with very limited international
participation, have been influenced only by prevailing liquidity conditions (and perceptions
about the same) in the domestic banking system.
Sovereign bond yields have moved up in the past couple of weeks, particularly in the last
couple of days, as the Reserve Bank of India put in place some measures for broadly
stabilising/restricting the liquidity level in the financial system.
Therefore, while equity markets have moved in sympathy with stocks globally, the Indian
bond market has seen yields rising while globally sovereign bond yields have fallen
substantially.

Source: www.thehindubusinessline.com

1.2 Components of Financial System

Figure 1.1: Components of a Financial System
Financial System

Financial Assets/Instruments Financial Markets Financial Intermediaries

Forex Market Capital Market Money Market Credit Market

Primary Market

Secondary Market

Money Market Instruments Capital Market Instruments Hybrid Instruments

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