Indian Capital Markets: A Study on Efficiency and Development

Abstract The Indian Capital Market has become multi-trillion dollar markets over the years. The capital market is the market for securities, where companies and the government can raise long-term funds. This includes the stock market and the bond market. The bulk of the capital markets assets trading daily are linked to efficiency and development of Indian Capital Market. From the beginning of its establishment India has seen a tremendous change in its development and efficiency. This paper analyzes how efficient is the Indian Capital Market and describes what kind of form of efficiency Indian Capital Market follows. The study shows that in spite of the Market Index not showing Random Walk property, it is very much possible that individual securities within the index may exhibit this property. Thus, terming markets efficient or non-efficient solely on the basis of index may give wrong results. It also shows that the Indian Capital Market is financially quite strong and the regulatory mechanisms in place have ensured that in spite the booming growth, the market has remained efficient and there is no unfair advantage to any person. Therefore here in this study for the analysis, weekly data on index options based on National Stock Exchange index i.e. S&P CNX NIFTY has been used for the period from September 1, 2003 to August 31, 2008. Basically financial year in Indian business firms is 1st April to 31st March. But in this study we have taken from 1st September to 31st August, this is because on the objective of making research the latest. The unit root test, run test, and auto correlation tests are used to examine stock market efficiency. The Aims and Objectives of this research are to have an in-depth knowledge of the Capital markets in India and in this report entitled Indian Capital Markets A Study on Efficiency and Development, I have tried my level best to make it simple and understandable. Statistical tests also known as Econometrics knowledge were applied and personal many past research studies were included for answering the research questions and achieving aims and objectives of research. The findings were in favour of capital markets being vital for the development of Indian Economy and they are not diminishing in todays world, but they are at the booming stage; and every institutional investor would want to use capital markets as a tool to maximise his profits. In the report it is concluded that as for of now the efficiency of Indian Market is a weak form from the beginning but its development is really at an appreciable manner and in the future years the capital market will continue to grow at more than the expected rate and even there is a need that capital market to be strong form of efficiency as to attract the investors across the world