Policy Challenge in Capital Markets

Modernising regulations, providing clarifications on circulars, and strengthening cybersecurity practices are essential to foster economic growth

- Sethuraman Ravi Shravan Shetty

The evolution of capital markets in India has closely reflected the progress and transformation of the Indian economy over time. Economic liberalisation in 1991 opened up capital markets, allowing foreign institutional investors to invest in India. This influx of capital brought a change in industry dynamics, marked by rapid economic growth and improved financial literacy. The introduction of electronic trading platforms like the National Stock Exchange (NSE) in 1994 further fuelled retail and institutional participation, aiding the development of capital markets.

The wave of digitization, especially in the late 1990s and early 2000s, transformed domestic capital markets and the stockbroking industry. It brought much-needed changes to archaic processes — for instance, electronic Know Your Customer and Digital Know Your Customer were game-changers. It led to a dramatic reduction in the cost of acquisition by removing the need for extensive physical infrastructure and greatly reduced entry barriers.

The use of digital platforms and mobile applications democratized access to capital markets, enabling companies to reach a broader audience from lower-tier cities and rural areas. It also significantly increased competition in the space. Stockbrokers offering no-commission models or lower transaction costs have resulted in a reduction in margins for traditional stockbroking players, forcing them to explore other revenue streams.