Monday, February 27, 2006

The Indian securities markets in 2005

As usual, Chapter 4 of the Economic Survey is on the securities markets. This was released today. It is a must-read for those interested in the field. Their website only gives you six PDF files for six sections. The Business Standard website is kindly offering a unified single-file of the whole chapter. One-way turnover on the equity spot and derivatives markets, put together, was Rs.60 trillion in calendar 2005. Wow. That's $1.35 trillion. Last year, it was slightly below a trillion dollars. I am not used to hearing `trillion dollars' in any Indian context. Out of the one-way turnover of Rs.120 trillion, a measly Rs.12.4 trillion were made by all institutional investors (domestic or foreign) put together. Particularly on the derivatives market, which is where price discovery takes place, all institutions are Rs.5.2 trillion out of a total of Rs.78.5 trillion. I suspect there isn't any other country with such a complete retail domination of price discovery.


  1. From the standpoint of an economist, does it really matter if a market is dominated by a certain kind of investors (like retail investors in India's case)? I've heard the argument about the lack of activity by some of the large institutional investors like insurance companies, pension funds (seen in other countries) in the Indian stock markets? If institutional investors like these step up their activity in the equity markets, will there necessarily be benefits (say for example better and quicker price discovery)?

  2. also, there has been this hoopla over whether or not to allow short_trading_of_gsecs. Does economic theory take a standpoint on this? what'd 'efficiency' mean in this context?


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