COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
A RESEARCH REPORT ON COMPARATIVE STUDY OF STOCK MARKET
DEVELOPMENT AND INDIAN ECONOMY PRE AND POST LIBERALIZATION OF
INDIAN ECONOMYSUBMITTED TO
INSTITUTE OF PROFESSIONAL EXCELLENCE AND MANAGEMENT, GHAZIABAD
SESSION 2008-10
SUBMITTED BYMr.JITENDRA SINGH Roll No - 0811470030 M.B.A. 2ND
YEAR I.P.E.M., GHAZIABAD
1| Page
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
INSTITUTE OF PROFESSIONAL EXCELLENCE AND MANAGEMENT
A-13/1,S.S.INDUSTRIAL AREA N.H.-24, GHAZIABAD- 201009
ACKNOWLEDGEMENT
I would like to express my Acknowledgement to those people,
without whose contribution, Support and guidance this Report would
not have seen the light of the day. Notable among them is Dr.B.S.
Sarin H.O.D. (MBA), IPEM, Ghaziabad. Who was my Project Guide and
who helped me in a lot? I am also thankful and would like to
express my Gratitude to the Honorable Director Col. A.S.Malhotra
and the entire Institute for giving me a platform to have this
wonderful opportunity and being able to get a glimpse of the
Corporate Word. I am also thankful to Dr. Chhaya Tyagi (Sr.
Lecturer M.B.A.) for their constant Support and valuable
suggestion.
2| Page
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
With Regards Mr. JITENDRA SIGNH M.B.A.-0811470030
PREFACE
As a Part of M.B.A. Program, Student has to pursue a Research
Project duly approved by the Faculty of Concerned area. I had the
privilege of undertaking the Research project on Comparative Study
of Capital Market Development and Indian Economy, Pre and Post
Liberalization of Indian Economy. Main aim of the Project is to
study how stock market and Indian economy are correlated to each
other.
3| Page
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
DECLERATION
I Jitendra Singh, Student of MBA II Year, Institute of
Professional Excellence and Management, Hereby declare that the
project on Comparative Study of Capital Market Development And
Economic Growth, Pre And Post Liberalization Of Indian Economy has
been done under the guidance of Dr. B.S. Sarin (HOD, MBA),
Institute of Professional Excellence and Management Studies &
Dr. Chhaya Tyagi( Sr. lecturer MBA IPEM,Ghaizabad).
4| Page
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
JITENDRA SINGH ROLL NO.0811470030 MBA 2008-10 IPEM GHAZIABAD
CONTENTS List of TablesTOPIC 1. TITLE PAGE 2.ACKNOWLEDGEMENT 3.
PREFACE PAGE NO 1 2 3
4. DECLEARATION
4
5| Page
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
5. INTRODUCTION AND HISTORY STOCK MARKET INDIAN ECONOMY 5-20
21-39
6. OBJECTIVES
40-41
7. SCOPE OF THE STUDY 8. USE AND IMPORTANCE OF THE TOPIC
42-43 44-46
9. 10. 11.
RESEARCH METHODOLOGY ANALYSIS OF DATA FINDINGS 12.
CONCLUSION
47-50 51-61 62-64 65-66
13. RECOMMENDATION 14 .LIMITATION 15.ANNEXURE
16.BIBLIOGRAPHY
67-68 69-71 71-76 77-78
6| Page
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
7| Page
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
STOCK MARKET OF INDIA
Introduction Stock markets refer to a market place where
investors can buy and sell stocks. The price at which each buying
and selling transaction takes is determined by the market forces
(i.e. demand and supply for a particular stock).
8| Page
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
Let us take an example for a better understanding of how market
forces determine stock prices. ABC Co. Ltd. enjoys high investor
confidence and there is an anticipation of an upward movement in
its stock price. More and more people would want to buy this stock
(i.e. high demand) and very few people will want to sell this stock
at current market price (i.e. less supply). Therefore, buyers will
have to bid a higher price for this stock to match the ask price
from the seller which will increase the stock price of ABC Co. Ltd.
On the contrary, if there are more sellers than buyers (i.e. high
supply and low demand) for the stock of ABC Co. Ltd. in the market,
its price will fall down. In earlier times, buyers and sellers used
to assemble at stock exchanges to make a transaction but now with
the dawn of IT, most of the operations are done electronically and
the stock markets have become almost paperless. Now investors dont
have to gather at the Exchanges, and can trade freely from their
home or office over the phone or through Internet.
CONCEPT OF STOCK EXCHANGEThe Securities Contracts (Regulation)
Act, 1956, has defined Stock Exchange as an "association,
organization or body of individuals, whether incorporated or not,
established for the purpose of assisting, regulating and
controlling business of buying, selling and dealing in Securities".
Stock exchange as an organized security market provides
marketability and price continuity for shares and helps in a fair
evaluation of securities in terms of their intrinsic worth. Thus it
helps orderly flow and distribution of savings between different
types of investments. This institution performs an important part
in the economic life of a country, acting as a free market for
securities where prices are determined by the forces of supply and
demand. Apart9| Page
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
from the above basic function it also assists in mobilizing
funds for the Government and the Industry and to supply a channel
for the investment of savings in the performance of its functions.
The Stock Exchanges in India as elsewhere have a vital role to play
in the development of the country in general and industrial growth
of companies in the private sector in particular and helps the
Government to raise internal resources for the implementation of
various development programmes in the public sector. As a segment
of the capital market it performs an important function in
mobilizing and channelizing resources which remain otherwise
scattered. Thus the Stock Exchanges tap the new resources and
stimulate a broad based investment in the capital structure of
industries. A well developed and healthy stock exchange can be and
should be an important institution in building up a property base
along with a socialist in India with broader distribution of wealth
and income. Thus Stock Exchange is a vital organ in a modern
society. Without a stock exchange a modern democratic economy
cannot exist. The system of joint stock companies financed through
the public investment as emerged has put the vast means of finances
almost to entrepreneurs needs. Indian Stock Markets are one of the
oldest in Asia. Its history dates back to nearly 200 years ago. The
earliest records of security dealings in India are meager and
obscure. The East India Company was the dominant institution in
those days and business in its loan securities used to be
transacted towards the close of the eighteenth century.
10 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
By 1830's business on corporate stocks and shares in Bank and
Cotton presses took place in Bombay. Though the trading list was
broader in 1839, there were only half a dozen brokers recognized by
banks and merchants during 1840 and 1850. The 1850's witnessed a
rapid development of commercial enterprise and brokerage business
attracted many men into the field and by 1860 the number of brokers
increased into 60. In 1860-61 the American Civil War broke out and
cotton supply from United States of Europe was stopped; thus, the
'Share Mania' in India begun. The number of brokers increased to
about 200 to 250. However, at the end of the American Civil War, in
1865, a disastrous slump began (for example, Bank of Bombay Share
which had touched Rs 2850 could only be sold at Rs. 87). At the end
of the American Civil War, the brokers who thrived out of Civil War
in 1874, found a place in a street (now appropriately called as
Dalal Street) where they would conveniently assemble and transact
business. In 1887, they formally established in Bombay, the "Native
Share and Stock Brokers' Association" (which is alternatively known
as The Stock Exchange "). In 1895, the Stock Exchange acquired a
premise in the same street and it was inaugurated in 1899. Thus,
the Stock Exchange at Bombay was consolidated. Other leading cities
in stock market operations Ahmedabad gained importance next to
Bombay with respect to cotton textile industry. After 1880, many
mills originated from Ahmedabad and rapidly forged ahead. As new
mills were floated, the need for a Stock Exchange at Ahmedabad was
realized and in 1894 the brokers formed "The Ahmedabad Share and
Stock Brokers' Association".
11 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
What the cotton textile industry was to Bombay and Ahmedabad,
the jute industry was to Calcutta. Also tea and coal industries
were the other major industrial groups in Calcutta. After the Share
Mania in 1861-65, in the 1870's there was a sharp boom in jute
shares, which was followed by a boom in tea shares in the 1880's
and 1890's; and a coal boom between 1904 and 1908. On June 1908,
some leading brokers formed "The Calcutta Stock Exchange
Association". In the beginning of the twentieth century, the
industrial revolution was on the way in India with the Swadeshi
Movement; and with the inauguration of the Tata Iron and Steel
Company Limited in 1907, an important stage in industrial
advancement under Indian enterprise was reached. Indian cotton and
jute textiles, steel, sugar, paper and flour mills and all
companies generally enjoyed phenomenal prosperity, due to the First
World War. In 1920, the then demure city of Madras had the maiden
thrill of a stock exchange functioning in its midst, under the name
and style of "The Madras Stock Exchange" with 100 members. However,
when boom faded, the number of members stood reduced from 100 to 3,
by 1923, and so it went out of existence. In 1935, the stock market
activity improved, especially in South India where there was a
rapid increase in the number of textile mills and many plantation
companies were floated. In 1937, a stock exchange was once again
organized in Madras - Madras Stock Exchange Association (Pvt)
Limited. (In 1957 the name was changed to Madras Stock Exchange
Limited).
12 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
Lahore Stock Exchange was formed in 1934 and it had a brief
life. It was merged with the Punjab Stock Exchange Limited, which
was incorporated in 1936.
Existing structure of the stock exchanges in India The Act
recognizes stock exchanges with different legal structure.
Presently the stock exchanges which are recognized under the
Securities Contracts (Regulation) Act in India could be segregated
into two broad groups 20 stock exchanges which were set up as
companies, either limited by guarantees or by shares, and the 3
stock exchanges which are functioning as associations of persons
(AOP) viz. BSE, Ahmedabad Stock Exchange and Indore Stock Exchange.
The 20 stock exchanges which are companies are: the stock exchanges
of Bangalore, Bhubaneswar, Calcutta, Cochin, Coimbatore, Delhi,
Gauhati, Hyderabad, Interconnected SE, Jaipur, Ludhiana, Madras,
Magadh, Managalore, NSE, Pune, OTCEI, Saurashtra-Kutch, Uttar
Pradesh, and Vadodara. Of these, the stock exchanges of Ahmedabad,
Bangalore, BSE, Calcutta, Delhi, Hyderabad, Madhya Pradesh, Madras
and Gauhati were given permanent recognition by the Central
Government at the time of setting up of these stock exchanges.
Apart from NSE, all stock exchanges whether established as
corporate bodies or Association of Persons (AOPs), are non-profit
making organizations. Powers that may be exercised by the Stock
Exchange The powers of the stock exchange are to be exercised as
per provisions in its bye-law. As per SCRA Act any recognised stock
exchange may, subject to the previous approval of the [Securities
and Exchange Board of India make bye-laws for the regulation and
control of contracts. The bye-laws can provide for the exercise of
following powers by the stock13 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY exchange a.
The opening and closing of markets and the regulation of the hours
of trade;
2010
b. Set up a clearing house for the periodical settlement of
contracts and differences there under, the delivery of and payment
for securities, the passing on of delivery orders and the
regulation and maintenance of such clearing house;
c. The regulation or prohibition of blank transfers;
d. The regulation, or prohibition of badlas or carry-over
facilities;
e. The fixing, altering or postponing of days for
settlements;
f. The determination and declaration of market rates, including
the opening, closing, highest and lowest rates for securities;
g. The terms, conditions and incidents of contracts, including
the prescription of margin requirements, if any, and conditions
relating thereto, and the forms of contracts in writing;
h. The regulation of the entering into, making, performance,
rescission and termination, of contracts, including contracts
between members or between a member and his constituent or between
a member and a person who is not a member, and the consequences of
default or insolvency on the part of a seller or buyer or
intermediary, the consequences of a breach or14 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
omission by a seller or buyer, and the responsibility of members
who are not parties to such contracts;
I. The regulation of taravani business including the placing of
limitations thereon;
j. The listing of securities on the stock exchange, the
inclusion of any security for the purpose of dealings and the
suspension or withdrawal of any such securities, and the suspension
or prohibition of trading in any specified securities;
k. The method and procedure for the settlement of claims or
disputes, including settlement by arbitration;
l. The levy and recovery of fees, fines and penalties
m. The regulation of the course of business between parties to
contracts in any capacity;
n. The exercise of powers in emergencies in trade (which may
arise, whether as a result of pool or syndicated operations or
cornering or otherwise) including the power to fix maximum and
minimum prices for securities;
o. The regulation of dealings by members for their own
account;
p. The separation of the functions of jobbers and brokers;15 | P
a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
q. The limitations on the volume of trade done by any individual
member in exceptional circumstances;
r. Fixing the obligation of members to supply such information
or explanation and to produce such documents relating to the
business as the governing body may require.
Indian Stock Exchanges - An Umbrella Growth The Second World War
broke out in 1939. It gave a sharp boom which was followed by a
slump. But, in 1943, the situation changed radically, when India
was fully mobilized as a supply base. On account of the restrictive
controls on cotton, bullion, seeds and other commodities, those
dealing in them found in the stock market as the only outlet for
their activities. They were anxious to join the trade and their
number was swelled by numerous others. Many new associations were
constituted for the purpose and Stock Exchanges in all parts of the
country were floated. The Uttar Pradesh Stock Exchange Limited
(1940), Nagpur Stock Exchange Limited (1940) and Hyderabad Stock
Exchange Limited (1944) were incorporated. In Delhi two stock
exchanges - Delhi Stock and Share Brokers' Association Limited and
the Delhi Stocks and Shares Exchange Limited - were floated and
later in June 1947, amalgamated into the Delhi Stock Exchanges
Association Limited.
16 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY History of the
Indian Stock Market - The Origin
2010
One of the oldest stock markets in Asia, the Indian Stock
Markets have a 200 years old history. 18th Century 1830's East
India Company was the dominant institution and by end of the
century, business in its loan securities gained full momentum
Business on corporate stocks and shares in Bank and Cotton presses
started in Bombay. Trading list by the end of 1839 got broader
1840's 1850's Recognition from banks and merchants to about half a
dozen brokers Rapid development of commercial enterprise saw
brokerage business attracting more people into the business 1860's
1860-61 The number of brokers increased to 60 The American Civil
War broke out which caused a stoppage of cotton supply from United
States of America; marking the beginning of the "Share Mania" in
India 1862-63 1865 The number of brokers increased to about 200 to
250 A disastrous slump began at the end of the American Civil War
(as an example, Bank of Bombay Share which had touched Rs. 2850
could only be sold at Rs. 87)
Pre-Independence Scenario - Establishment of Different Stock
Exchanges 187417 | P a g e
With the rapidly developing share trading business, brokers used
to
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
gather at a street (now well known as "Dalal Street") for the
purpose of transacting business. 1875 "The Native Share and Stock
Brokers' Association" (also known as "The Bombay Stock Exchange")
was established in Bombay 1880's 1894 Development of cotton mills
industry and set up of many others Establishment of "The Ahmedabad
Share and Stock Brokers' Association" 1880 90's 1908 1920 Sharp
increase in share prices of jute industries in 1870's was followed
by a boom in tea stocks and coal "The Calcutta Stock Exchange
Association" was formed Madras witnessed boom and business at "The
Madras Stock Exchange" was transacted with 100 brokers. 1923 When
recession followed, number of brokers came down to 3 and the
Exchange was closed down 1934 1936 1937 Establishment of the Lahore
Stock Exchange Merger of the Lahoe Stock Exchange with the Punjab
Stock Exchange Re-organization and set up of the Madras Stock
Exchange Limited (Pvt.) Limited led by improvement in stock market
activities in South India with establishment of new textile mills
and plantation companies 1940 Uttar Pradesh Stock Exchange Limited
and Nagpur Stock Exchange Limited was established 194418 | P a g
e
Establishment of "The Hyderabad Stock Exchange Limited"
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY 1947
2010
"Delhi Stock and Share Brokers' Association Limited" and "The
Delhi Stocks and Shares Exchange Limited" were established and
later on merged into "The Delhi Stock Exchange Association
Limited"
POST INDEPENDENCE SCENARIO
The depression witnessed after the Independence led to closure
of a lot of exchanges in the country. Lahore stock Exchange was
closed down after the partition of India, and later on merged with
the Delhi Stock Exchange. Bangalore Stock Exchange Limited was
registered in 1957 and got recognition only by 1963. Most of the
other Exchanges were in a miserable state till 1957 when they
applied for recognition under Securities Contracts (Regulations)
Act, 1956. Most of the exchanges suffered almost a total eclipse
during depression. Lahore Exchange was closed during partition of
the country and later migrated to Delhi and merged with Delhi Stock
Exchange. Bangalore Stock Exchange Limited was registered in 1957
and recognized in 1963. Most of the other exchanges languished till
1957 when they applied to the Central Government for recognition
under the Securities Contracts (Regulation) Act, 1956. Only Bombay,
Calcutta, Madras, Ahmedabad, Delhi, Hyderabad and Indore, the well
established exchanges, were recognized under the Act. Some of the
members of the other Associations were required to be admitted by
the recognized stock exchanges on a concessional basis, but acting
on the principle of unitary control, all these pseudo stock
exchanges were refused recognition by the Government of India and
they thereupon ceased to function.19 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
Thus, during early sixties there were eight recognized stock
exchanges in India (mentioned above). The number virtually remained
unchanged, for nearly two decades. During eighties, however, many
stock exchanges were established: Cochin Stock Exchange (1980),
Uttar Pradesh Stock Exchange Association Limited (at Kanpur, 1982),
and Pune Stock Exchange Limited (1982), Ludhiana Stock Exchange
Association Limited (1983), Gauhati Stock Exchange Limited (1984),
Kanara Stock Exchange Limited (at Mangalore, 1985), Magadh Stock
Exchange Association (at Patna, 1986), Jaipur Stock Exchange
Limited (1989), Bhubaneswar Stock Exchange Association Limited
(1989), Saurashtra Kutch Stock Exchange Limited (at Rajkot, 1989),
Vadodara Stock Exchange Limited (at Baroda, 1990) and recently
established exchanges - Coimbatore and Meerut. Thus, at present,
there are totally twenty one recognized stock exchanges in India
excluding the Over the Counter Exchange of India Limited (OTCEI)
and the National Stock Exchange of India Limited (NSEIL).
Government policies during 1980's also played a vital role in
the development of the Indian Stock Markets.POST REFORMS STOCK
MARKET SCENARIO
After the initiation of reforms in 1991, the Indian secondary
market now has a three tier form. Regional stock exchange National
stock exchange (NSE) Over the Exchange of India (OTCEI) The NSE was
set up in 1994 .It was the first modern stock exchange to bring in
new20 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY technology ,
new trading practices , new institutions , and new products.
2010
The OTCEI was set up in 1992 as a stock exchange providing small
and medium sized companies the means to generate capital. In all,
there are at present, 23 stock exchange in India 19 regional stock
exchanges, BSE, NSE, OTCEI, and the interconnected stock exchange
of India (ISE) The 19 regional stock exchanges are located at
Ahmedabad, Bangalore, Bhubaneswar, Kolkata, Cochin, Coimbatore,
Delhi, Guwahati, Hydrabad, Indore, Jaipur, Kanpur, Ludhiana,
Chennai, Mangalore, Pune, Patna, Rajkot, and Vadodara. They operate
under the rules, by laws and regulations approved by the government
and SEBI.
REFORMS IN INDIAN CAPITAL MARKETThe 1991_92 securities scam
prompted the government to increases the pace of reforms in the
capital market. Several measures have been undertaken since then in
both the primary and secondary market. Primary market reforms:
Security exchange Board of India was set up in early 1988 as a non
statutory body was given power in January 1992.The two objective
mandated in the SEBI act are investor protection and orderly
development of the capital market. The SEBI has introduced various
guidelines and regulatory measures for capital market in India. The
issuing company is required to make material disclosure about the
risk factors, in their offer document and also to get their debt
instrument rated. The infrastructure of the primary capital market
has been fairly diversified over the years with the setting up of a
large number of merchant bankers, investment and consulting21 | P a
g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY agencies
registrars to the issue and so on.
2010
The primary capital market has widened and deepened with public
sector banks , financial institutions , and public sector
enterprises in Three new stock exchange at the national level were
set up in the1990s. There are over the counter Exchange of India
(1992), National stock Exchange of India (1994), and Inter
connected the infrastructure and power sectors increasingly raising
resources from the market both way of debt and equity. Companies
are now required to disclose all materials fact and specific risk
factor associated with their project while making public issue
process. SEBI has also introduced a code of advertisement for
public issues for ensuring fair and true picture. In order to
reduce the cost of issue, the underwriting issue has been made
optional subject to the condition that if the subscription is less
than 90% of the amount offered, the entire amount collected would
be refunded to the investor. Secondary market reforms: The open
outcry trading system, prevalent till 1995, was replaced by the
online screen based trading system (SBTS). In all 23 stock
exchanges have approximately 8000, trading terminals spread all
over the country. Stock Exchange of India (1999). Trading and
settlement cycle were uniformly trimmed from 14 days to 7days in
all stock exchanges in Aug 1996. The settlement cycle for all
securities was shorted from T+5 to T+3 days with effect from April
1, 2002. With a view to maintaining integrity and ensuring safety
of the market, various risk22 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
containment measures have been initiated such as the mark to
mark margin system, intra day trading limit, exposure limit, and
setting up of trade / settlement guarantee fund. To enhance the
level of investor protection, the process of dematerialization of
securities through the depository system and their transfer through
electronic book entry is pursued vigorously. For this purpose
National Securities Depository Limited and central Depository
service was set up. Issuing company is required to make continuing
disclosure under the listing agreement. One of the major reforms in
the secondary market is the measure to improve corporate governance
.this is a set of system and process designed to protect the
interest of stake holders. The insider trading regulations have
been formulated prohibiting insider trading and making it a
criminal offence, punishable in accordance with the provision under
the SEBI Act, 1992. In February 1999, trading terminal was allowed
to be set up abroad for facilitating market participation by
nonresidents. Internet trading was permitted in February 2000. How
do the debt markets impact the economy? 1. Increased funds for
implementation of government development plans. The government can
raise funds at lower costs by issuing government securities. 2.
Conducive to implementation of a monetary policy. 3. Less risk
compared to the equity markets, encouraging low-risk investments.
This leads to inflow of funds into the economy. 4. Higher liquidity
and control over credit. 5. Opportunity for investors to diversify
their investment portfolio. 6. Better corporate governance.23 | P a
g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
7. Improved transparency because of stringent disclosure norms
and auditing requirements.
INTRODUCTION OF INDIAN ECONOMYPRE LIBERALISED ECONOMYEarly
Indian Economy Indian economy in the early period was a self
sufficient economy comprising of several villages. Indian villages
produced and met their requirement according to division of labour
and their economic activity was restricted to village economy.
Barter system prevailed as an exchange mechanism. Basically, the
primary activity was agriculture. Other services like carpentry,
weaving, hair dressing, etc. were offered by labourers who extended
their services based on hereditary. They received their wages as
food products. In short, Indian villages functioned as an
independent republics and the only interference was from the King
for whom they paid taxes in kind. Thus, India had happy villages.
Prior to the British rule, religion, system of the society and
kings law influenced the economy to a great extent. There prevailed
caste system which decided the division of labour for the benefit
of the societys economy. Further, the prevalence of joint-family
system helped them to pool their resources for their individual
family benefit and also for the benefit of the society. Another
advantage of the joint-family system was that the cultivable lands
were not fragmented, yielding to better economic gains. Another
influencer of early Indian economy was the Hindu religion. The
religious canters also functioned as Indian trade centers. For
example, major pilgrimage spots like Nasik, Allahabad, Varanasi,
etc. also functioned as centers of commerce and trade. Many trade
and
24 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
commerce activities were linked to the religious festivals and
functions. In short, the Hindu religion acted as an indirect
catalyst for the Indian economy. One of the major industries in
early India was textile. Handicrafts were also part of the Indian
industrial activity. Indian textile products like shawls, dhotis,
dopattas, woolen products, cotton goods, etc. and handicraft
products were exported to overseas markets, such as Egypt, South
East Asia, Greece, etc. It is worth noting that when Europe (birth
place of modern industrialism) was inhabited by uncivilized people,
India was very popular for its craftsmanship and rich economy.
Indian Economy during Colonialism Indian land had been invaded and
ruled by many outsiders, amongst which the British regime was
considered very important. British East India Company entered India
in 1757 through the Battle of Plessey and the Crown took the
complete administration during 1858. Politically, India was under
the British rule for around two centuries and the Indian economy
was significantly influenced during their rule. Indian culture and
administration too underwent a major transition during British
rule. PRE-LIBERALIZATION POLICIES Indian economic policy after
independence was influenced by the colonial experience (which was
seen by Indian leaders as exploitative in nature) and by those
leaders' exposure to Fabian socialism. Policy tended towards
protectionism, with a strong emphasis on import substitution,
industrialization, state intervention in labor and financial
markets, a large public sector, business regulation, and central
planning. Five-Year Plans of India resembled central planning in
the Soviet Union. Steel, mining, machine tools, water,
telecommunications,25 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
insurance, and electrical plants, among other industries, were
effectively nationalized in the mid-1950s. Elaborate licences,
regulations and the accompanying red tape, commonly referred to as
Licence Raj, were required to set up business in India between 1947
and 1990. Before the process of reform began in 1991, the
government attempted to close the Indian economy to the outside
world. The Indian currency, the rupee, was inconvertible and high
tariffs and import licensing prevented foreign goods reaching the
market. India also operated a system of central planning for the
economy, in which firms required licenses to invest and develop.
The labyrinthine bureaucracy often led to absurd restrictions up to
80 agencies had to be satisfied before a firm could be granted a
licence to produce and the state would decide what was produced,
how much, at what price and what sources of capital were used. The
government also prevented firms from lying off workers or closing
factories. The central pillar of the policy was import
substitution, the belief that India needed to rely on internal
markets for development, not international trade a belief generated
by a mixture of socialism and the experience of colonial
exploitation. Planning and the state, rather than markets, would
determine how much investment was needed in which sectors. IMPACTS
The low annual growth rate of the economy of India before 1980,
which stagnated
around 3.5% from 1950s to 1980s, while per capita income
averaged 1.3%. At the same time, Pakistan grew by 5%, Indonesia by
9%, Thailand by 9%, South Korea by 10% and in Taiwan by 12%. Only
four or five licences would be given for steel, power and
communications.
License owners built up huge powerful empires.26 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY A huge public
sector emerged. State-owned enterprises made large losses.
Infrastructure investment was poor because of the public sector
monopoly.
2010
License Raj established the "irresponsible, self-perpetuating
bureaucracy that still
exists throughout much of the country" and corruption flourished
under this system.
Rajiv Gandhi government (1984-1989) Government in the 80s, the
government led by Rajiv Gandhi started light reforms. The
slightly reduced License Raj and also promoted the growth of the
telecommunications and software industries. The Vishwanath Pratap
Singh government (19891990) and Chandra Shekhar government
(19901991) did not add any significant reforms.
Narasimha Rao government (1991-1996)CrisisThe assassination of
Prime minister Indira Gandhi in 1984, and later of her son Rajiv
Gandhi in 1991 crushed international investor confidence on the
economy that was eventually pushed to the brink by the early 1990s.
As of 1991, India still had a fixed exchange rate system, where the
rupee was pegged to the value of a basket of currencies of major
trading partners. India started having balance of payments problems
since 1985, and by the end of 1990, it was in a serious economic
crisis. The government was close to default, its central bank had
refused new credit and foreign
27 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
exchange reserves had reduced to the point that India could
barely finance three weeks worth of imports. A Balance of Payments
crisis in 1991 pushed the country to near bankruptcy. In return for
an IMF bailout, gold was transferred to London as collateral, the
Rupee devalued and economic reforms were forced upon India. That
low point was the catalyst required to transform the economy
through badly needed reforms to unshackle the economy. Controls
started to be dismantled, tariffs, duties and taxes progressively
lowered, state monopolies broken, the economy was opened to trade
and investment, private sector enterprise and competition were
encouraged and globalization was slowly embraced. The reforms
process continues today and is accepted by all political parties,
but the speed is often held hostage by coalition politics and
vested interests.
ReformsThe Government of India headed by Narasimha Rao decided
to usher in several reforms that are collectively termed as
liberalization in the Indian media. Narasimha Rao appointed
Manmohan Singh as a special economical advisor to implement
liberalization. The reforms progressed furthest in the areas of
opening up to foreign investment, reforming capital markets,
deregulating domestic business, and reforming the trade regime.
Liberalization has done away with the Licence Raj (investment,
industrial and import licensing) and ended many public monopolies,
allowing automatic approval of foreign direct investment in many
sectors. Rao's government's goals were reducing the fiscal deficit,
privatization of the public sector, and increasing investment in
infrastructure. Trade reforms28 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
and changes in the regulation of foreign direct investment were
introduced to open India to foreign trade while stabilizing
external loans. Rao's finance minister, Manmohan Singh, an
acclaimed economist, played a central role in implementing these
reforms. New research suggests that the scope and pattern of these
reforms in India's foreign investment and external trade sectors
followed the Chinese experience with external economic reforms. In
the industrial sector, industrial licensing was cut, leaving only
18 industries subject to
licensing. Industrial regulation was rationalized. Abolishing in
1992 the Controller of Capital Issues which decided the prices and
number of shares that firms could issue.
Introducing the SEBI Act of 1992 and the Security Laws
(Amendment) which gave SEBI the legal authority to register and
regulate all security market intermediaries.
Starting in 1994 of the National Stock Exchange as a
computer-based trading system
which served as an instrument to leverage reforms of India's
other stock exchanges. The NSE emerged as India's largest exchange
by 1996. Reducing tariffs from an average of 85 percent to 25
percent, and rolling back quantitative controls. (The rupee was
made convertible on trade account.) Encouraging foreign direct
investment by increasing the maximum limit on share of foreign
capital in joint ventures from 40 to 51 percent with 100 percent
foreign equity permitted in priority sectors. Streamlining
procedures for FDI approvals, and in at least 35 industries,
automatically
approving projects within the limits for foreign participation.
Opening up in 1992 of India's equity markets to investment by
foreign institutional investors and permitting
29 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
Indian firms to raise capital on international markets by
issuing Global Depository Receipts (GDRs). Marginal tax rates were
reduced. Privatization of large, inefficient and loss-inducing
government corporations was
initiated.LATER REFORMS
Atal Bihari Vajpayee's administration surprised many by
continuing reforms, when it was at the helm of affairs of India for
five years. The Vajpayee administration continued with
privatization, reduction of taxes, a sound
fiscal policy aimed at reducing deficits and debts and increased
initiatives for public works. The UF government attempted a
progressive budget that encouraged reforms, but the
1997 Asian financial crisis and political instability created
economic stagnation. Right to Information Act (2005) Indo-US
civilian nuclear agreement (2008) Right to Education Bill (2008)
Impact of reforms
The impact of these reforms may be gauged from the fact that
total foreign investment (including foreign direct investment,
portfolio investment, and investment raised on international
capital markets) in India grew from a minuscule US $132 million in
1991-92 to $5.3 billion in 1995-96.
30 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
Cities like Gurgaon, Bangalore, Hyderabad, Pune and Ahmedabad
have risen in prominence and economic importance, became centres of
rising industries and destination for foreign investment and firms.
Policy tended towards protectionism, with a strong emphasis on
import substitution, industrialization, state intervention in labor
and financial markets, a large public sector, business regulation,
and central planning. Five-Year Plans of India resembled central
planning in the Soviet Union. Steel, mining, machine tools, water,
telecommunications, insurance, and electrical plants, among other
industries, were effectively nationalized in the mid-1950s.
Elaborate licences, regulations and the accompanying red tape,
commonly referred to as Licence Raj, were required to set up
business in India between 1947 and 1990. Jawaharlal Nehru, the
first prime minister, along with the statistician Prasanta Chandra
Mahalanobis, carried on by Indira Gandhi formulated and oversaw
economic policy. They expected favorable outcomes from this
strategy, because it involved both public and private sectors and
was based on direct and indirect state intervention, rather than
the more extreme Soviet-style central command system... The policy
of concentrating simultaneously on capital- and
technology-intensive heavy industry and subsidizing manual,
low-skill cottage industries was criticized by economist Milton
Friedman, who thought it would waste capital and labour, and retard
the development of small manufacturers. The rate from 194780 was
derisively referred to as the Hindu rate of growth, because of the
unfavorable comparison with growth rates in other Asian countries,
especially the "East Asian Tigers". The Rockefeller Foundation's
research in high-yielding varieties of seeds, their introduction
after 1965 and the increased use of fertilizers and irrigation are
known collectively as the31 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
Green Revolution in India, which provided the increase in
production needed to make India self-sufficient in food grains,
thus improving agriculture in India. Famine in India, once accepted
as inevitable, has not returned since the end of colonialism. It is
paradoxical that India is a rich country (in terms of enormous
natural and man power resources) with poor people. India adopts a
mixed economic model which is tending towards economic
liberalization in order to attain self-reliance. Indian economy is
characterized by lower per capita income, mass unemployment and
under employment, over-dependence of agriculture, over population,
poor standard of living, low level of capital formation, low levels
of health and education facilities, etc. Indian population, instead
of being an asset, has most often proved to be a liability and
economic distress. This calls for more attention by the Government
in the upliftment of the population. Thus, any economic policy
treatment in India will be viewed with a social mind frame. During
1901, urban population which was at 10.8 per cent of total
population has increased to 25.7 per cent during 1991. Further,
almost the entire rural population of 1901 (213 million) lives in
urban India during 1991 (218 million). This indicates the extent of
migration. Savings and capital formation are very important for a
countrysonomic development. The gross domestic savings which was at
Rs 2544 crore in 1960-61 rose to Rs 157186 crore in 1992-93. The
contribution of household sector to savings is the largest in
India, followed by public sector and private corporate sector. The
rate of saving s in India to GDP is not satisfactory due to several
reasons, such as, low per capita income, poor performance of public
sector enterprises, poor contribution of private sector players and
untapped rural savings potential.32 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
It is worth noting that the gross savings of corporate sector,
for the period 1960-61 to 199293, indicates an annual average
growth rate of 14.23 per cent. However, when the savings and
capital formation in the private corporate sector are compared with
the gross domestic savings and capital formation, it has remained
at more or less the same proportion around one-eighth of the total
domestic savings. This is an indication of the corporate sectors
dependence on household sector savings for its long term capital
requirements, which has led to a broad based structure of share
ownership pattern. Indian economy has come a long way, especially
after independence. Since independence, the structure of the Indian
economy has gone through several changes, out of which sectoral
contribution to the economy is the most vital one. The agricultural
contribution to GDP is declining gradually as seen in the Table
below. While the contribution of industrial sector has not improved
to a great extend, the service sectors contribution to GDP has
notably increased. One of the main reasons for this change can be
attributed to the economic policies of India. Sectoral Share in
National Income(figures in percentage) 1970-71 Agriculture Industry
Service 50 20 30 1995-96 29 28 43
It has to be noted that though the contribution of agriculture
to GDP has declined, still majority of the population (around 67
per cent as per 1991 census) is depend on primary
33 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
sector. This is the reason for the failure of many
multinationals in India. They fail to notice this fact and over
estimated the demand potential of their products.
SINCE 1991Major improvements in educational standards across
India have helped its economic rise. Shown here is the Indian
School of Business at Hyderabad, ranked number 15 in global MBA
rankings by the Financial Times of London in 2009. In the late 80s,
the government led by Rajiv Gandhi eased restrictions on capacity
expansion for incumbents, removed price controls and reduced
corporate taxes. While this increased the rate of growth, it also
led to high fiscal deficits and a worsening current account. The
collapse of the Soviet Union, which was India's major trading
partner, and the first Gulf War, which caused a spike in oil
prices, caused a major balance-of-payments crisis for India, which
found it facing the prospect of defaulting on its loans. India
asked for a $1.8 billion bailout loan from IMF, which in return
demanded reforms. In response, Prime Minister Narasimha Rao along
with his finance minister Manmohan Singh initiated the economic
liberalization of 1991. The reforms did away with the Licence Raj
(investment, industrial and import licensing) and ended many public
monopolies, allowing automatic approval of foreign direct
investment in many sectors.[55] Since then, the overall direction
of liberalization has remained the same, irrespective of the ruling
party, although no party has tried to take on powerful lobbies such
as the trade unions and farmers, or contentious issues such as
reforming labour laws and reducing agricultural subsidies. Since
1990 India has emerged as one of the fastest-growing economies in
the developing world;
34 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
during this period, the economy has grown constantly, but with a
few major setbacks. This has been accompanied by increases in life
expectancy, literacy rates and food security. While the credit
rating of India was hit by its nuclear tests in 1998, it has been
raised to investment level in 2007 by S&P and Moody's. In 2003,
Goldman Sachs predicted that India's GDP in current prices will
overtake France and Italy by 2020, Germany, UK and Russia by 2025
and Japan by 2035. By 2035, it was projected to be the third
largest economy of the world, behind US and China. In 2009 India
purchased 200 Tons of Gold for $6.7 Billion from IMF as a total
role reversal from 1991.AGRICULTURE
Agriculture is the back bone of Indian economy for several
centuries. The importance of agriculture in Indian economy is
prominently evident. Nearly 70 per cent of the population depends
on agriculture either directly or indirectly for their living.
According to 1991 Census Report, over 67 per cent of the work force
is still engaged in primary sector. However, employment in this
sector is not wide spread. In other words, only 0.78 per cent of
rural population (or 1.97 per cent of the rural work force) is
employed in allied activities, such as, livestock, forestry, etc.
Considering Indias wide natural resource potential (sea base,
animal stock, etc.) this is a very negligible figure. Thus, there
can be found great untapped employment opportunities for rural work
force in the allied sector.Indian agriculture is characterized by
lack of technology, low productivity, under employment,
multiplicity of crops, unequal distribution of land, predominance
of small farmers, etc.
INDUSTRY 35 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
Industrialization is vital for a countrys economic development.
Indian industrial sector is characterized by under-utilization of
resources, low capital formation, low level of technology, and lack
of skilled man power and social attitudes of the population. Indian
industrial development is also highly influenced by the political
climate of India, the political philosophy of the ruling party, the
attitude and culture of the political administrators and Indian
Industrial Policies. Indian industry also depends highly on the
attitudes and aspirations of the Indian man power and Indian
society. The economic structure of India follows a mixed economy.
Thus, the functioning of duel sectors - public and private - exists
in India. Public sector includes both public utility undertakings
and public enterprises. Due to several factors, such as, low
returns, long time lag, defense requirements, public utilities,
large resource requirement, development of backward regions,
development of infrastructure, etc. the Government had to invest in
certain capital-intensive segments to share the burden of
industrialization and to generate employment opportunities.
However, most of the public sector undertakings do not perform well
from the angle of profitability and/or efficiency for many reasons,
like initial heavy costs, capital-intensive industries, large
capacities, heavy social costs, low priced products, labour
problems and high expense ratio, unprofessional manpower planning,
etc. The role of private sector in Indian industrial development
cannot be under stated. Private sector is also sharing Governments
burden in certain heavy investment ventures today, like
infrastructure. This is due to the improved government policy
towards private sector. The Indian Government has been form time to
time changing its industrial policies to suit the economic and
global environment in favour of industrial sector. Further, there
can be found a36 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
trend towards taking advantage of the liberalized industrial
policy frame work. This is vindicated by the various indicators of
investment intentions. However, the private sector in India faces
several obstacles: undue delay by the government authorities,
restrains on capacity, over-dependence of public sector, price
restrictions, small scale reservations, finance, etc. Though
private sector is facing many problems, its contribution to Indian
economy is remarkable. For instance, India achieved a GDP growth
rate of 7 per cent in 1995-96 for the first time since 1950,
despite a low agricultural growth rate of 2.4 per cent. The major
factor which contributed for this growth rate was achievement by
the industrial sector which registered a growth rate of 12.1 per
cent in 1995-96.SERVICE AND INFRASTRUCTURE SECTOR
For any developing nation development of service and
infrastructure segment is very important to reach its economic
goals. India is successful in improving its service and
infrastructure areas. It is very evident that the role of service
sector in Indian economic development has increased by several
notches from the fact that this sector which was contributing only
around 20 per cent during independence is contributing over 43 per
cent currently to Indias GDP. Service and infrastructure sector is
comprised of the following segments: Banking, Insurance, Transport,
Telecom and Power. Banking Performance of the banking sector is
considered as a proxy for the economy as a whole, due to banks'
wide spectrum of exposure across industries. Unfortunately for
India, the banking37 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
sector has historically remained under the impact of
non-competitiveness, poor technology integration, high NPAs and
grossly under productive manpower. Banking sector in India has a
wide mix, comprising of joint sector (scheduled and nonscheduled
banks), nationalized sector (Reserve Bank of India, State Bank of
India and all other nationalized commercial banks and post office
savings bank), specialized corporate financial institutions
(specific industrial finance corporations and state finance
corporations), co-operative sector (co-operative banks and land
development banks) and foreign sector (foreign commercial banks and
exchange banks). Keeping in mind the socio-economic goals of the
country, banks were under strict control of the regulatory bank -
Reserve Bank of India. For instance, during mid-1969, 14 major
Indian commercial banks were nationalized. One of the major
criticisms against nationalization of commercial banks was with
respect to efficiency. And the critics were right. Since
nationalization, the operational efficiency of the commercial banks
have come down, thanks to the public-sector working attitude of the
bank work force. Since, their pay is not linked to performance;
there is no inducement for the banking staff to perform well. This
has been further, deteriorated by the poor quality to man power
planning which is linked to selection of inefficient staff on the
basis of social reservations. Insurance Insurance sector in India
has been enjoying a state-monopoly status in India for decades.
Under Indian conditions there is only two broad classification of
insurance companies: life and non-life insurance. The life
insurance activities are solely managed by Life Insurance
Corporation of India and the rest is handled by General Insurance
Corporation of India.38 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
Life insurance business was started in India during British
rule. Prior to independence, there were several insurance
companies: Oriental Life Insurance Company, Bombay Life Assurance,
The Madras Equitable Life Insurance Society, Oriental Government
Security Life Assurance Company, etc. Most of the insurance
companies were charging a very high extra premium of 15 to 20 per
cent, since they considered Indian lives as sub-standard. These
insurance companies prevailed during the time of independence
failed to sustain on a long term basis. As many as 25 companies
were liquidated and another 25 companies had to merge with other
companies at a lost to the policy holders. This has forced the
Government of India in 1956 to nationalize all the 245 life
insurance companies (154 Indian and 16 foreign), and form the Life
Insurance Corporation of India. Transport A well developed
transport system will support an economy in several ways : supports
the industry by increasing the efficiency of production, rises the
demand through movement of products, facilitates the location of an
industry, helps the development of urbanization, movement of man
power, better standard of living, better education, etc.
Contribution of transport to Indian economy is very significant.
Indian transport sector comprises of all forms of transports:
railways, roadways, water and air transport. Indian Railways,
largest Indian public sector undertaking and largest railway system
in Asia run 12000 trains a day, with over 63000 route kms of track.
Indian Railways has around 7000 railway stations. The total
distance covered by the 12000 trains every day equals three and
half times the distance to moon. It takes a gigantic task of
carrying nearly 11 million passengers and 1.2 million tons of cargo
per day. Indian Railways function as a major39 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
employment generator in India. Of the 27 million people employed
in the organized sector, Indian Railways accounts for 6 per cent
directly and an additional 2.5 per cent indirectly. Totally about
1.6 million people are employed by Indian Railways. The importance
of road transport to Indian economy cannot be neglected. Road
transport is vital for the movement of agricultural products and
also for industrial development. Thus, roads quicken the rate of
growth. Further, road transport functions as a supportive system to
railways. Railways can reach only certain locations, and the rest
of the link is taken care by road transport. At the time of
independence India had only 388000 kms of roads. Today, India has
2178008 km of road length, thanks to planning efforts. The cheapest
mode of transport is water transport, since water-ways provide
readymade routes and thus no infrastructure costs involved in
developing journey routes, compared to railway or road transport.
India has both inland water and marine or shipping transport
facilities. India possesses about 14150 kms. Of navigable inland
water-ways. Notable Indian water-ways are: Ganga, Brahmaputra,
Godavari, Krishna, Delta Canals, Mondovi, Zuari, Buckingham Canal
and back-waters and the west coast canals of Kerala. Considering
the geographical sea-base benefits of India, there is much scope to
improve this mode of transport in the country, especially the coast
line transport. Telecom In an economic policy frame work where the
role of markets and incentives based on the price system are
emphasized, infrastructural goods and services, such as
telecommunications are generally characterized by high fixed
investments, long gestation lags and relatively low
40 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
profits, especially during the initial phases of operation. For
a long period, almost all the infrastructural projects in India
were Governments responsibility. However, as India moved along the
path of economic development, the process of liberalization began
and private sectors supportive role was recognized. Telecom sector
was opened up for private sector participation into basic services
and value added services with the policy announcement in May 1994.
In order to meet the rising demand in the telecom sector, Indian
Government decided to invite private players to supplant the
government supported agencies in rendering basic as well as value
added telecom services. Though opened up, barring a few areas like
pagers and mobile phones, Indian telecommunication sector is
dominated by Department of Telecom (DOT) and two government
companies VSNL and MTNL. Power Power is a vital input for the
growth of industrial development of any nation - higher the power,
higher the industrial growth and higher the employment. Since
independence most of the projects in this sector has been financed
and managed by government agencies Center or State (nearly 90 per
cent or more investment required for the power sector came from the
public sector through Five Year/Annual Plans). However, since
liberalization, the role of private sector, inclusive of foreign
players was recognized in the power projects. Power projects
involve huge investments and overseas support in terms of financing
as well as managing power projects become inevitable for a
developing nation like India, since electricity cannot be easily
imported or stored and hence, creation of generation capacity
domestically is critical for meeting the country's demand for
power. If the capacity41 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
additions are not done in time, power shortages result in the
system which leads to inefficient operations and management,
decelerate investment in other sectors of the economy and hamper
the growth process of the country in general. In India, the endemic
power shortages and cuts lead to inadequate capacity utilization,
unproductive expenditure such as in back-up generators and much
waste, all of which impose a major constraint on economic growth.
Power Finance During post-independence era, power - one of the
major core sector - has been funded by the government/government
agencies, when private participation was almost nil in power
sector, thanks to government policies. However, with
liberalization, this core sector was opened to private sector and
consequently to the foreign players. Further, due to constraints of
funds with the Government of India, the public sector would suffer
from inadequacy of funds. With present levels of finances, only
20000MW in each plan period could be built in the public sector.
Thus, the rest (84000MW) is expected to be financed through private
sector, both Indian and foreign. Since the cost outlay in power
projects are huge, financing the projects through internal accruals
alone becomes inevitable; and further, the government is also
slowly changing withdrawing itself from the role of producer and
trying to stick-on only as a regulator in the long run. Thus, power
producers has to look in for alternate source of financing such as,
term loans from financial institutions (internally and
internationally) like World Bank, ADB, ICICI, etc. and debt market
in India and abroad.
42 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
Some 70 per cent of the finance required by the power sector
over the next decade - total estimated at about Rs.5000 billion (US
$143 billion) - has to be found through debt. While the sector
could expect special consideration in the allocation of foreign
debt entitlement, the bulk of the debt finance will have to be
raised in rupees. Identified level of rupee debt at present is
about 75 billion per annum. This would need stepping up
significantly. The center has decided to allocate about Rs.14000
crore for nuclear energy to generate an additional 1000MW during
the Ninth Plan period. This is an Rs.1000 crore increase over the
Eight Plan period allocation which was Rs.13000 crore. Further,
according to the estimation of Finance Minister, around 22.5 per
cent of the proposed voluntary disclosure scheme for harnessing
black money would be used for financing infrastructure projects and
basic minimum services program.
43 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
OBJECTIVE OF THE STUDY44 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
PRIMARY OBJECTIVE:
To understand the relationship between stock market development
and economic growth in pre and post liberalization of Indian
economy.
SECONDARY OBJECTIVE:
To study about the impacts of stock market on Indian
economy.
To study about the significant growth of stock market and Indian
economy.
To study about the status of capital market and Indian economy
in pre and post liberalized economy of India.
45 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
46 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
SCOPE OF THE STUDYThere are following scope of the study:-
Relationship between stock market and Indian economy. Impact of
stock market on the growth of industrial sector of India and
vice-versa. Relationship between stock market and different sectors
of Indian economy. Impact of stock market on gross domestic product
(G.D.P.).
Stock market and Indian economy affects each other in
significant way. So in this study I identified that area of Indian
economy which are related with the fluctuation and variation of
stock market.
47 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
48 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
IMPORTANCE OF THE TOPICThere are various significant impacts on
the Indian economy and industrial sector. Its contribution to the
economy reflects the importance of the Indian stock market. So
there are following importance of the topic of research paper.
Study of the impact of stock market on Indian economy. It helps
to understand the reflection of the stock market fluctuation on
industrial sectors and their growth. Study of stock market impact
on gross domestic product (GDP). Help to understand the
contribution to the better corporate governance. It helps to
understand the significance impact on the higher liquidity and
control over credit. Debt markets impact the economy? Increased
funds for implementation of government development plans. The
government can raise funds at lower costs by issuing government
securities.
49 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY Conducive to
implementation of a monetary policy.
2010
Less risk compared to the equity markets, encouraging low-risk
investments. This leads to inflow of funds into the economy. Higher
liquidity and control over credit. Opportunity for investors to
diversify their investment portfolio. Better corporate governance.
Improved transparency because of stringent disclosure norms and
auditing requirements.
There are following use and importance of the topic apart from
above points: Impacts On Stock Market After Liberalization Impacts
on Indian economy after liberalization Comparative study of various
factors that affects the economy and stock market.
50 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
51 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
RESEARCH METHODOLOGY
Research:The study of research method provides you with the
knowledge and skills you need to solve the problem and meet the
challenges of the fast- based decision. Marketing environment we
define Business Research as a systematic inquiry whose objective is
to provide information to solve managerial problem. It seeks to
find explanation to unexplored phenomena to clarify the doubtful
facts and to correct the misconceived facts. RESEARCH METHODOLOGY52
| P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
Research methodology is the arrangement of conditions for
collection and analysis of data in a manner that aims to combine
relevance to the research purpose with economy in procedure.
Research methodology is the conceptual structure within which
research is conducted. It constitutes the blueprint for the
collection measurement and analysis of the data.
Types of Research:
Descriptive Research: Descriptive study is a fact- finding
investigation with adequate interpretation. It is the simplest type
of research. It is more specific than an explanatory study, as it
has focus on particular aspect of the problem studied. It is
designed to get her descriptive information and provide information
for formulating more sophisticated studies. Data are collected by
using one or more appropriate method, observation, interviewing and
mail questionnaire. Type of Data Used:There are basically two types
of Data 53 | P a g e
Primary Data
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY Secondary
Data
2010
But here in the research report, I have used only secondary
data. Which provides relative data regarding the research? Primary
Data:Primary Data is first hand information that the researcher
collects. It helps in collecting useful and most accurate
information that is needed for the researcher to do his research.
Secondary Data:Secondary data is what the researcher collects from
different sources. It also help researcher to get elaborate
information to do his research. Sources of Secondary Data: Internet
Journals Data From other organization
Technique used for analysis & interpretation: Bar Diagram
& Pie Chart Percentage Analysis54 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
55 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
ANALYSIS OF DATA COLLECTED :
There is a saying: stock markets have predicted 10 out of the
last 3 recessions.56 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
With plummeting share prices making headline news, it is worth
considering the impact of the Stock market on the economy. How much
should we worry when share prices fall? How does it impact on the
average consumer? And how does it affect the economy? Economic
Effects of Stock Market 1. Wealth Effect The first impact is that
people with shares will see a fall in their wealth. If the fall is
significant it will affect their financial outlook. If they are
losing money on shares they will be more hesitant to spend money;
this can contribute to a fall in consumer spending. However, the
effect should not be given too much importance. Often people who
buy shares are prepared to lose money; their spending patterns are
usually independent of share prices, especially for short term
losses. 2. Effect on Pensions Anybody with a private pension or
investment trust will be affected by the stock market, at least
indirectly. Pension funds invest a significant part of their funds
on the stock market. Therefore, if there is a serious fall in share
prices, it reduces the value of pension funds. This means that
future pension payouts will be lower. If share prices fall too
much, pension funds can struggle to meet their promises. The
important thing is the long term movements in the share prices. If
share prices fall for a long time then it will definitely affect
pension funds and future payouts. 3. Confidence Often share price
movements are reflections of what is happening in the economy. E.g.
recent falls are based on fears of a US recession and global
slowdown. However, the stock market57 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
itself can affect consumer confidence. Bad headlines of falling
share prices are another factor which discourages people from
spending. On its own it may not have much effect, but combined with
falling house prices, share prices can be a discouraging factor. 4.
Investment Falling share prices can hamper firms ability to raise
finance on the stock market. Firms who are expanding and wish to
borrow often do so by issuing more shares it provides a low cost
way of borrowing more money. However, with falling share prices it
becomes much more difficult. As I said earlier there is an oft
repeated quote saying the stock market has predicted 10 out of the
last 3 recessions. The point is that falling stock markets do not
necessarily predict the economic future. Share prices can fall
without causing a downturn in the economy. For example, one thinks
of the stock market crashes of October 1987; there wasnt an obvious
economic factor causing this share price fall. The major economies
remained relatively unaffected by this stock market crash. In fact,
the UK had record growth in the late 1980s. This time the stock
market fall is due to economic weaknesses so is a better guide to
future economic performance. How does the economy affect stock
investments? A stocks price will go up and down based on what
investors think about that individual company, its industry sector,
or its competitors. But the economy can also play a role in stock
prices. Stock prices go up and down in response to:
58 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
Interest rates: The Bank of Canada can raise or lower interest
rates to stabilize or stimulate the Canadian economy. This is known
as monetary policy. If a company borrows money to expand and
improve its business, higher interest rates will affect the cost of
its debt. This can reduce company profits and the dividends it pays
shareholders. As a result, the stock price may drop.
Economic outlook: If it looks like the economy is going to
expand, stock prices may rise. Why? Investors may buy more stocks
thinking they will see future profits and higher stock prices.
Inflation: Inflation means higher consumer prices. This often
slows sales and reduces profits. Higher prices will also often lead
to higher interest rates. For example, the Bank of Canada may raise
interest rates to slow down inflation. These changes will tend to
bring down stock prices. However, commodities and some industries
and companies can do better with inflation, so their prices may
rise.
Deflation: Here, the cost of goods and services drops. A dollar
buys more. Interest rates rise, so people borrow less. They often
wait to buy goods in the hope that prices will drop more. The Great
Depression (1929-1939) was one of the worst periods of deflation
ever.
Economic shocks: Big changes in the world can affect both the
economy and stock prices. For example, lets say energy costs rise.
This can affect a lot of companies and consumers and lead to lower
sales, lower profits, and lower stock prices. Another example is an
act of terrorism, which can lead to a downturn in economic activity
and a fall in stock prices.
59 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
Changes of government: A new government can make new policies.
Sometimes these changes can be seen as good for business, and
sometimes not. Sometimes they may lead to changes in inflation and
interest rates. These changes may affect stock prices.
The value of the Canadian dollar: Many Canadian companies sell
products to buyers in other countries. If the Canadian dollar
rises, their customers will have to spend more to buy Canadian
goods. This sometimes drives down sales, which in turn can lead to
lower stock prices. On the other hand, when the price of the
Canadian dollar falls, it makes it cheaper for others to buy our
products. This can make stock prices raise.
Watch these videos of Camilla Sutton, Scotia Capital currency
strategist, with Rob Carrick from the Globe and Mail discussing how
you can become your own currency analyst, how currency affects
investment returns and what is driving the Canadian dollar right
now.
60 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
In the pre liberalized period the Indian economy is more
instable. At that time it become negative due to various constraint
and other factors. There are following two charts which reflect the
pre and post liberalized position of Indian economy. These charts
reflects the variation in economic system through GROSS DOMESTIC
PRODUCT ,which more appropriate measure of Indian economy.
PRE-LIBERALISED PERIOD:
INDEPENDENCE TO 1991 Indian economic policy after independence
was influenced by the colonial experience (which was seen by Indian
leaders as exploitative in nature) and by those leaders' exposure
to Fabian socialism. Policy tended towards protectionism, with a
strong emphasis on import substitution, industrialization, state
intervention in labor and financial markets, a large public sector,
business regulation, and central planning. Five-Year Plans of India
resembled central planning in the Soviet Union. Steel, mining,
machine tools, water, telecommunications, insurance, and electrical
plants, among other industries, were effectively nationalized in
the mid-1950s. Elaborate licences, regulations and the accompanying
red tape, commonly referred to as Licence Raj, were required to set
up business in India between 1947 and 1990. Jawaharlal Nehru, the
first prime minister, along with the statistician Prasanta Chandra
Mahalanobis, carried on by Indira Gandhi formulated and oversaw
economic policy.61 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY Indian GDP
becomes three times negative before reforms period.
2010
To set up a strong economic system Indian government has taken a
steps to reform all its economic policies under the narsimham
committee. POST REFORM PERIOD: After the liberalization period the
Indian economy shows a positive. Prime Minister Narasimha Rao along
with his finance minister Manmohan Singh initiated the economic
liberalisation of 1991. The reforms did away with the Licence Raj
(investment, industrial and import licensing) and ended many public
monopolies, allowing automatic approval of foreign direct
investment in many sectors.[55] Since then, the overall direction
of liberalisation has remained the same, irrespective of the ruling
party, although no party has tried to take on powerful lobbies such
as the trade unions and farmers, or contentious issues such as
reforming labour laws and reducing agricultural subsidies.[56]
Since 1990 India has emerged as one of the fastest-growing
economies in the developing world; during this period, the economy
has grown constantly, but with a few major setbacks. This has been
accompanied by increases in life expectancy, literacy rates and
food security. Following chart reflects the attitude of GDP after
the reforms period.
62 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
Impact of Global Recession on Indian Market In the globalized
market scenario, the impact of recession at one place/ industry/
sector perculate down to all the linked indusrty and this can be
truly interpreated from the current market situation which is faced
by the world since approx 2 month and still the situation is not in
control inspite of various measures taken to fight back the
recession in the market.The badly hit setor at present being the
financial sector, and major issue being the "LIQUIDITY Crises" in
the market.
In-spite of the various measures to subsidies the impact of the
recession and cut down the inflation present nothing really sound
have been done. Various steps taken by RBI to curb the present
recession in the economy and counter act the prevailing
situation.63 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
The sudden drying-up of capital inflows from the FDI which were
invested in Indian stock markets for greater returns visualizing
the Potential Higher Returns flying back is continuing to challenge
liquidity management. At the heart of the current liquidity
tightening is the balance of payments deficit, and this NRI deposit
move should help in some small way. Because of the various reforms
and improvement in various sectors strengthen the Indian economic
system. After the reforms period Indian GDP reflects the positive
trends. The reforms progressed furthest in the areas of opening up
to foreign investment, reforming capital markets, deregulating
domestic business, and reforming the trade regime. Liberalisation
has done away with the Licence Raj (investment, industrial and
import licensing) and ended many public monopolies, allowing
automatic approval of foreign direct investment in many sectors.
Rao's government's goals were reducing the fiscal deficit,
privatization of the public sector, and increasing investment in
infrastructure. Trade reforms and changes in the regulation of
foreign direct investment were introduced to open India to foreign
trade while stabilizing external loans. Rao's finance minister,
Manmohan Singh, an acclaimed economist, played a central role in
implementing these reforms. New research suggests that the scope
and pattern of these reforms in India's foreign investment and
external trade sectors followed the Chinese experience with
external economic reforms.A COMPARATIVE CHART OF SENSEX IN PRE AND
POST LIBERALIZED ECONOMY:
64 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
The above chart reflect that before the reform the BSE Sensex is
below 2000 and after the reforms it shows a positive trends because
of following reason: The major step taken in the reform is the
Establishment of SECURITIES EXCHANGE BOARD OF INDIA. Which regulate
the whole stock market? Entry of foreign institutional investor,
who played a very important role in the success of stock market.
Rules and regulation which strengthen the stock market. Economic
perspective of the Indian stock market performance. After the
reforms Indian stock exchanges has taken various step such as:
Establishment of National Stock Exchange, Depositories,
introduction of mutual fund, Dematrialisation of securities etc65 |
P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
Electronic trading also a positive effort taken by the SEBI to
make stock market more effective. WHY STOCK MARKETS AND BANKS BOTH,
INDEPENDENTLY OF EACH OTHER, BOOST ECONOMIC GROWTH? Although the
empirical evidence is consistent with the view that stock markets
and banks promote economic growth independently of each other, the
reasons are not fully understood. One argument is that stock
markets and banks provide different types of financial services.
Stock markets offer opportunities primarily for trading risk and
boosting liquidity; in contrast, banks focus on establishing
long-term relationships with firms because they seek to acquire
information about projects and managers and enhance corporate
control. (There is, of course, some overlap. Like stock markets,
banks help savers diversify risk and provide liquid deposits. Like
banks, stock markets may stimulate the acquisition of information
about firms, because investors want to make a profit by identifying
undervalued stocks to invest in; stock markets may also help
improve corporate governance by simplifying takeovers, providing an
incentive to improve managerial competency.)
66 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
67 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
FINDINGS OF THE RESEARCH:
Indian economy and Indian stock market are positively related to
each other. A positive growth of Indian economy reflects the
significant growth of Indian stock market. Apart from this a
positive growth in stock market investments reflects the growth in
valuation of organization which ultimately leads to the growth of
the Indian economy.
There are significant impacts of reforms on Indian economy. Step
taken by Indian government are strengthen the economic system.
Capital market reforms influence the investments pattern of
foreign as well as domestic investors.
Indian economy leads to the growth of stock market with positive
correlation.
Indian stock market is the gateway to increase the value of the
organization. Where open trading of various securities reflects the
market value of the organization.
With the development in Indian economy since pre liberalized
period stock market get positive development.
68 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
Indian government has taken various steps to strengthen the
stock market and economic system. Apart from Indian economy, the
stock market affected from various other factor such as:
investments from foreign institutional investors, Demand and supply
of order to buy or sell the various securities.
Indian economy also affects from various other factor such as:
various sector as service, transportation, power etc...
69 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
70 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
CONCLUSION OF THE STUDY:
In developing countries like India the positive growth of
economy and stock market is possible through the proper strategies
and balance of both. On the basis of analysis and findings, it is
clear that economy leads the stock market and vice-versa.
The Indian stock market is uncertain but fundamentally it
depends upon economic condition and various other factors.
Economic condition of developing countries like India depend
upon income and consumption pattern and growth of industrial,
service , transportation sectors etc
The combination of both stock market and economic development
leads to the rapid growth of any individual country. Highly
affected economy from the foreign investments. The stock market is
driven by changes in economic growth. Economic performance
(1994-2005)71 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
By 1995, the Indian stock markets were busy restructuring their
systems. The industry continued to consolidate/restructure,
improved its efficiency and shifted focus from capacity creation to
cost competitiveness.
Remember: Many factors can affect stock prices as well as
economy of thecountry.
72 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
RECOMMENDATION OF RESEARCH: After the analysis of the project
study, following recommendations can be made:
Simplifying procedures and relaxing entry barriers for business
activities and providing investor friendly laws and tax system for
foreign investors.
There should be strict rules and regulation for strengthen the
stock market and
economy of the country. Government should taka care economic
system and regulation of stock market to
protect the interest of Indian people. There should be strict
regulatory framework for economic and stock market activities.
Indian government should emphasis on infrastructure development
which leads the
Indian economy as well as stock market through change in
investments pattern of Indian people.
73 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
More emphasis on untouched sector of Indian economy at the time
of policy
formulation. There should be positive correlation between stock
market development and Indian
economy.
74 | P a g e
COMPARATIVE STUDY OF STOCK MARKET DEVELOPMENT AND ECONOMIC
GROWTH,PRE AND POST LIBERALISATION OF INDIAN ECONOMY
2010
LIMITATIONS
besides following scientifi