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The history of the Indian capital markets has been a tumultuous one replete with the emergence of many new financial instruments and mechanisms, contributing in good measure to enhanced marketability, efficiency, transparency and participation. This has also contributed to making the Indian investor community today an adaptive, discerning and observant one that rapidly adapts to any new and innovative investment opportunity, says R Vaidyanath, General Manager, Debt Markets, The Stock Exchange, Mumbai.
Fixed income securities offer one of the most attractive investment opportunities with regard to safety of investments, adequate liquidity, flexibility in structuring a portfolio, easier monitoring, long-term reliability and decent returns. The debt markets in India include fixed income securities issued by the Central and State Governments, Government-owned financial bodies, financial institutions, banks, public sector undertakings and public limited companies. Government securities which account for around 70 percent of the market capitalization and more than 90 percent of the turnover in the debt market today are the most attractive among the fixed income securities in India.
Capital markets in India have somehow come to be synonymous with stock markets. This is no doubt due to the wide participation and interest among the 50 million investors in the Indian equities market. In comparison, the debt markets in India have traditionally remained a wholesale market with participation restricted to a few hundred banks and investors who formed a captive investor base due to the statutory requirements. The turnover in the debt markets too was languishing at a few hundred crores till a few years ago, compared to the thousand of crores in stocks that were transacted at the Indian bourses.
This has been partly due to the long history of governmental control and influences over the debt markets, which have impeded the growth of these markets in the same manner as the equities market. It is interesting to note that there was indeed a retail debt market in existence in India in the late '50s and '60s when more than half of the holdings of government securities were held by individual investors. The administered interest rate regime which led to lower yields on government securities and the availability of a number of other financial instruments led to the disappearance of this market altogether.
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