An Econometric Assessment of Performance of Indian Capital Market

During last two and half decades there has been a paradigm shift in Indian capital market. The applications of technology in the payment and settlement systems have made the Indian capital market comparable with the international capital markets. Now, the market features a developed regulatory mechanism and a modern market infrastructure with growing market capitalization, market liquidity, and mobilisation of resources. However, the market has witnessed its worst time with the recent global financial crisis that originated from the US sub-prime mortgage market and spread over to the entire world as a contagion. The capital market of India registered a sluggish performance. In this context, it is imperative to conduct empirical analysis to study the performance of Indian capital market. It is with this backdrop, this paper attempts to analyse the key market parameters such as market size, market liquidity, market turnover ratio, market volatility, and market efficiency of Indian capital market over a period from 2002 to 2009 so as to assess its performance. The application of time series econometric model provides the evidence of greater volatility and weak form inefficiency of the market. However, the market shows strong potential for greater market size, more liquidity and reasonable market turnover ratio.