ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Manipulated Market

FOR anyone familiar with the volatile behaviour of the Indian capital market, its current depressed state should not have come as a surprise. It reflects essentially the impact of certain fundamental factors, some internal to the working of the capital market and others relating to the economy in general. The foremost amongst these is, of course, the speculation-driven nature of the market which has made it hyper-sensitive, in the present instance, to signs of political instability. The growth of the capital market and of the number and variety of players in it in recent years has far outstripped the growth of the real economy. It all began with the authorities' attempt, around the mid-1980s, to integrate the money and capital markets which encouraged the free flow of bank funds, directly and indirectly, into the share market. The financial system began to be dominated by a few players with political clout who showed scant regard for the rules of the game. From the other side, the so-called equity cult was drummed up by some of the larger companies, such as Reliance Industries, to avoid supervision and control by banks and financial institutions These developments culminated in the Harshad Merita boom. Share prices tumbled when the bubble burst in due course, but speculation was again stimulated by the emergence on the scene of foreign institutional investors (FIIs). Within a period of about two years, by early 1994, share prices had piereed the Harshad Mehta peak. Since then the FIIs, their attitude towards the emerging markets and their assessment of financial and political risks have dominated the Indian stock markets.

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