Why is it in the News?

Recently, India’s stock market has overtaken Hong Kong’s to rank as the fourth-biggest equity market globally for the first time.

News Summary:

• As of January 22, 2024, data compiled by Bloomberg indicates that the combined value of shares listed on Indian exchanges has reached USD 4.33 trillion, surpassing Hong Kong's USD 4.29 trillion.
  • The top three global stock markets are currently the United States, China, and Japan.

What is Stock Market?

• A stock market is a platform where individual and institutional investors trade various securities, including stocks, bonds, Exchange Traded Funds (ETFs), and derivatives.
• Stock markets are categorized into two types:
  • Primary Market: Involves the initial offering of new shares, bonds, etc.
  • Secondary Market: Encompasses the trading of existing securities like equities and bonds.
    • Examples include stock exchanges such as the Bombay Stock Exchange.

Importance of Stock Market:

• For Businesses: Facilitates access to capital, risk diversification, and supports business expansion.
• For Investors: Offers better returns compared to traditional savings instruments, provides tax benefits, and contributes to capital growth.
• For Society: Drives social impact through instruments like Social Impact Bonds, encourages sustainable investment via Green bonds and promotes responsible financial practices.
• For Economy: Mobilizes idle savings, fosters entrepreneurship through venture capital funds, and plays a vital role in economic development.

Challenges in Indian Stock Markets:

• High Volatility: Market fluctuations can be significant, posing challenges for investors.
• Limited Issuer and Investor Base: Constraints on both issuers and investors can adversely impact liquidity.
• Sub-optimal Corporate Debt Market: Dominance of government bonds hampers the growth of the corporate debt market.
• Other Issues: Various factors, such as regulatory complexities and market inefficiencies, can affect the optimal functioning of Indian stock markets.

How is the Stock Market Regulated in India?

• The stock market in India is regulated by various bodies, with the primary regulatory authority being the Securities and Exchange Board of India (SEBI).
  • SEBI is a statutory regulatory body established in 1992 to protect the interests of investors and promote the development of the securities market in India.
  • It operates under the Securities and Exchange Board of India Act, 1992.
• Also, while SEBI is the primary regulatory authority for the Indian stock market, the Reserve Bank of India (RBI) supports its efforts by ensuring overall financial stability, implementing monetary policies, and regulating aspects related to banking and foreign investments.
• Additionally, these bodies contribute to the nation's economic progress by facilitating capital formation.