Efficient capital markets are essential for economicgrowth and prosperity. An integral part of capital market is the stock market,the development of which is linked with the country’s level of savings,investment and the rate of economic growth. India’s stock market has beenclassified as one of the fastest growing markets. Bombay Stock Exchange (BSE) andNational Stock Exchange (NSE) are the largest and most liquid exchanges inIndia and they are the major sources of capital formation in India.
Local and foreign investor’s confidence inthe investment environment of India has boosted the stock market index inrecent years. The developing countries are witnessing changes in thecomposition of capital flows in their economies because of the expansion andintegration of the world equity market. The stock markets are also experiencingthis change. It is generally recognized that a strong financial systemguarantees the economic growth and stability. Stock market is an integral partof the financial system of the economy. It is a source of financing a newventure based on its expected profitability. The stock market is replica of theeconomic strength of any country.
To boost investment, savings and economicgrowth, the development of stock market is imperative and cannot be ignored inany economy. Foreign direct investments (FDIs) are becoming important source offinance in developing countries including India. Foreign Direct Investment in developing economies has grown rapidly following financial andpolitical transformations. To increase their share of FDI flows, most of thecountries ease restrictions on foreign direct investment, strengthened macro stability,privatization of state-owned enterprises, domestic financial reforms, capitalaccount liberalization, tax incentives and subsidies have been instituted. In addition, stock markets have been established tointermediate funds towards investment projects. The positive response of thesestructural changes in attracting FDI and its consequence on their financialmarkets especially stock market is obvious. With the advent of informationtechnology, especially the internet-based applications in the capital marketsat the global level, information describing the macro and micro environment ofeconomies is readily accessible.
This flow of information has perhaps, made thecapital markets relatively more efficient as the stakeholders are better placedto access and act in accordance with the changing dynamics of environment. Intoday’s globally integrated world, information access is easy and universal.