The capital market is the market for securities, where
Companies and governments can raise long-term funds. It is a market in which money is lent for periods longer than a year. A nation’s capital market includes such financial institutions as banks, insurance companies, and stock exchanges that channel long-term investment funds to commercial and industrial borrowers. Unlike the money market, on which lending is ordinarily short term, the capital market typically finances fixed investments like those in buildings and machinery.
Nature and Constituents:
The capital market consists of number of individuals and institutions (including the government) that canalize the supply and demand for longterm capital and claims on capital. The stock exchange, commercial banks, co-operative banks, saving banks, development banks, insurance companies, investment trust or companies, etc., are important constituents of the capital markets.
The capital market, like the money market, has three important Components, namely the suppliers of loanable funds, the borrowers and the Intermediaries who deal with the leaders on the one hand and the Borrowers on the other.
The demand for capital comes mostly from agriculture, industry, trade The government. The predominant form of industrial organization developed Capital Market becomes a necessary infrastructure for fast industrialization,and hence its important for the economy because india is a land if agriculture where more than 70 % of population depends upon agriculture and as India is also an developing nation so,industrialization is must necessary
In this topic we have discussed that the development of stock market must contributes to economic growth both directly and indirectly. Hence stock market plays an important role in the economy of a country. Following the direct channel, we show that market liquidity has a positive impact on growth and indirectly market size affects investments which must affect growth of the country. Security markets also play a crucial role in economic growth and financial stability. The primary purpose of security markets is to serve as a mechanism for the transformation of savings into financing for the real sector, and hence constituting an alternative to bank financing.
Recent local and global studies show that there is a positive correlation between the developments of stock markets and economic growth. Stock markets must be very efficient in the allocation of capital to its highest-value users. These markets also help to increase savings and investment, which are essential for economic development. If an equity market is informationally inefficient then investors face difficulties in choosing the optimal investment, because information on corporate performance is slow.
Role of Securities Markets in Economic Development
The increasing stringency of terms on both domestic and international loans, the urgency of mobilizing domestic resources by means other than dent finance has been greatly identified. The alternative to debt finance, of course is equity market. Capital market refers to the market for long and medium term funds for the business enterprise. It can be divided into securities and non-securities market. Securities market in turn may be divided unto the markets for primary issues and markets for secondary trading of the issued securities. In the secondary market, the existing securities change from the investor to another.
There is no additional flow of funds for investment purposes in a secondary market; it only provides liquidity and marketability to the existing securities. A secondary market is very essential for a new issue market to develop. The secondary market can play most crucial functions in the pace of economic development by the promotion of savings and investment and efficient allocation of finds among the users. The securities market offers both investors and issues a broad spectrum of investment alternatives, which can help increase the level of both savings and investment. An efficient capital market can play the crucial role in mobilizing domestic savings for the purpose of investment
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Topic: Economic Development of India
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