capital market reforms..!

A vibrant capital market is a necessary requirement of a fast growing economy. Capital markets directly link ultimate savers with final investors . They lower the cost of capital for these companies by getting rid of intermediate layers such as banks . The two most popular forms of capital markets are stock market and bond market. Stock markets represent democratization of economics whereby common man directly get to own shares of different corporate giants. Moreover, the people can choose appropriate companies through detailed search thus can get higher returns by targeting funds to well performing companies.

The stock market indices are a good measure of the investors faith in the economy. The real time market scrutiny on a continuous produces a sense of discipline in these companies. However, Indian stock markets are shallow and can be manipulated . The over-reliance on FIIs makes our markets susceptible to external shocks such as the one we experienced early this year. Moreover, the standards of corporate governance need to be strengthened to avoid Satyam like situation as its the faith of the investors in the system which is responsible for the success of stock markets.

Bond market is another facet of capital market whereby companies get direct access to debt. Its a sad story that corporate bond markets are not well developed in India. The present bond markets are dominated by government bonds and we need to take steps to promote the market for corporate bonds as it will reduce the cost of doing business for better companies. Finally, financial literacy is not up to the mark in this country and we need to promote financial literacy to have inclusive growth.