Balbharati solutions for Economics HSC 12th Standard Maharashtra State Board
CHAPTER: - 9 MONEY MARKET AND CAPITAL MARKET OF INDIA
Q.7. Answer the following
4. Explain the problems of the capital market in India.
Following points explain the problems faced by the Indian Capital Market :
Financial Scams: Increasing number of financial frauds have resulted in an irreparable loss for the capital market. Besides this, it has also led to public distrust and loss of confidence among the individual investors.
Insider trading and price manipulation: Insider trading means buying or selling of a security by someone who has access to non-public information or ‘unpublished information’ for personal benefit. Price manipulation or price rigging on the other hand means to simply raise the prices of shares through buying and selling of shares within certain individuals themselves for personal gains. Such illegal practices have also affected the smooth functioning of the capital market.
Inadequate debt instruments: Debt instruments include bonds, debentures, etc. There is not much trading in the debt securities due to a narrow investor base, high cost of issuance, lack of accessibility to small and medium enterprises.
Decline in the volume of trade: Regional stock exchanges have witnessed a sharp decline in the volume of trade because investors prefer to trade in securities listed in premier stock exchanges like BSE, NSE, etc.
Lack of informational efficiency: A market is said to be informationally efficient if a company’s stock prices incorporate all the available information into the current prices. However, the stock market in India lacks informational efficiency compared to advanced countries.
