A strong regulatory mechanism combined with a campaign to promote equity investments will go a long way in building the confidence of investors.

These are the best of times for the Indian stock markets. However, look at it from a different perspective and these could also be the worst of times. The good news is well-known. The market infrastructure is significantly better now than at any time in the past. We have screen-based order matching system, rolling settlements, trade guarantee, demat settlement and a well-functioning derivatives segment. Corporate profitability is increasing and so are the stock indices. Volumes are increasing on the stock exchange both in terms of the depth1 as well as the breadth2 of the market. Optimism in the markets is at a high. India is one of the fastest growing economies in the world and people are projecting good tidings for the Indian economy in the coming decades. Corporate governance is improving with increased disclosure in financial statements and improved regulations.

Given such a scenario it is difficult to visualize the issues and challenges facing the stock markets. I would like to touch upon one fundamental issue relating to the stock markets, which also poses a challenge to all the market participants and regulators. This relates to the abysmal level of equity investments as a proportion of household savings and the general perception of the stock markets as a risky place akin to a gambling den.

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