Competitive Exams: Current Affairs 2012: India's 3rd Major Stock Exchange

  • The approval for MCX-SX to set up India's third major stock exchange comes in a year when interest in the financial markets among retail investors has reached its nadir. So, as a move to perk up interest among investors, this is a step in the right direction.

  • The primary justification for a stock market to exist is to provide liquidity to companies listed there and create an easy investment avenue for the middle class.

  • As the world economy lurches through a prolonged recession, with daily liquidity at the cash market in India's National Stock Exchange plummeting to just about Rs. 12, 000 crore, it will be interesting to observe how the new exchange is able to ramp up liquidity.

  • The Indian financial sector has lagged behind the rest of the economy as a means to raise funds to maintain a trend GDP growth rate of 8 per cent per annum. Since interest rates too are higher in India than in comparable economies, the combination of shallow liquidity and high rates has encouraged a raft of companies to move their financial requirements overseas.

  • In the calendar year 2010, before the economy tumbled, the total primary issue was only Rs. 48, 654 crore. Compared with an aggregate bank credit of Rs. 35, 82, 048 crore, this looks paltry and shows the extent to which the Indian economy depends on the latter [Bank Credit]. This asymmetry needs to be addressed.

  • To the extent that the new exchange is able to make retail investors come in to trade and small enterprises to list, the depth of the markets will improve.

  • For the Indian economy, this will be the measure of the success of this bold new venture.

Courtesy: The Hindu