BACKGROUND OF CAPITAL MARKET:
The capital market is the child of Capitalist philosophy, which undoubtedly assures smooth flow of investment funds. The Bombay Stock Exchange (BSE) came into existence in 1875. Subsequently, stock exchanges came up in other industrial and trading centre. Capital markets were quite inactive in sixties and seventies and the private corporate sector depended on their retained earnings and loan funds from the Government owned financial and investment institution for their expansion and growth. In the early post-independence era, the capital market virtually remained passive player in the process of economic development and was unable to mobilize the financial resources of the nation in required volume. The Government had always underestimated the instrumentality of the capital market in boosting the industrial growth in the country. During the first stock boom from 1861-65, stocks of all companies that were floated commanded a premium. Banks and financial associations also attracted investors. Once the American civil war ended, the Indian Stocks Market crashed on July 1865. After this first boom, Indian Stock Market went through several ups and downs, reflecting the two world wars, the great depressions and its own independence movement. The repeated collapses of the market left causalities, together with a glamour for reforms of speculative market and manipulative practices in 1923, 1936 and 1947.The first reform attempt ended with the legislation of the Bombay Securities Contracts Act of 1925. The second one was almost squashed. The third reform attempt was made after the collapse of the World war 11 boom of 1942-46. The Company Law then in force overlooked manipulating and rigging of share prices. The reform took a long time. In 1947, India finally got independence, but it was not until nine years taken that, the Companies Act 1956 was enacted to plug the loop holes of previous Company Law. By the mid of 1980s, the late Mr. Rajiv Gandhi the then Prime Minister, initiated the era of liberalization in the financial sector and the Indian Capital Markets first came into the focus of Government attention in 1987. These reforms led to strong speculative activities and the stock market experienced an unprecedented boom and the then underdeveloped Indian Capital Market was enabled to arrest this trend. India introduced structural changes and initiated economic reforms in the year 1991, when Mr. P.V. Narasimha Rao came to power. Since then, India is being turned around and integrated with the global economy. The major objectives were to reduce the capital intensity of growth process, lessen its reliance on the public sector and thus translate the country’s investment rate into high and sustainable growth of output and employment. The nineties have been characterized by the new Industrial policy, on line trading emergence, of the new market regulator (SEBI), the integration of the Indian stock markets with global stock exchanges.
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