Indian capital market is one of the emerging markets in the world. During the past one and half decade the Indian capital market has discerned significant transformation and structural changes.

Strong macro-economic funda-mentals, favorable investment climate, encouraging corporate results, and buoyant secondary market performance supported by institutional investors encouraged a number of companies to raise capital from the primary market. During 2006-07, 124 companies accessed the primary market and raised Rs. 33,508 crore through public and rights issues compared to 139 companies which had raised Rs. 27,382 crore in 2005-06. Even though the number of companies accessing the primary market was lower, the amount mobilized was higher in 2006-07 as compared to the previous year. Of the 85 public issues, 77 were Initial Public Offerings (IPO’s) and eight were Further Public Offerings (FPOs). Resources raised through IPO’s and FPOs were Rs. 28,504 crore and Rs. 1,293 crore, respectively. The average size of the public issues increased from Rs. 226 crore in 2005-06 to Rs. 351 crore in 2006-07. The average size of IPO’s increased from Rs. 138 crore to Rs. 370 crore during the same period. The share of IPO’s in the total resource mobilization was 85.1 per cent in 2006-07 as compared to 40.0 per cent in 2005-06. The amount mobilized through rights issues declined from Rs. 4,088 crore in 2005-06 to Rs. 3,711 crore in 2006-07. Due to introduction of QIP in 2006-07, the resources raised through FPO route declined from 45.1 per cent in 2005-06 to 3.9 per cent in 2006-07. As per the data made available by NSE and BSE, four companies only at BSE and 21 companies both at NSE and BSE raised Rs. 4,963 crore at BSE and Rs. 4,530 crore at NSE through the QIP route.

The private sector companies dominated the resource mobilization from the primary market in 2006-07. There were 122 issues from the private sector companies and only two issues from the public sector The private sector and the public sector raised Rs. 31,728 crore and Rs. 1,779 crore respectively. The public sector issues were from Power Finance Corporation Ltd. (a financial company) and Indian Bank. During 2006-07, 94.7 per cent of total resource mobilization was from private sector compared to 73.8 per cent in previous year. The share of public sector declined from 26.2 per cent in 2005-06 to 5.3 per cent in 2006-07.

The average issue-size was larger in 2006-07 as compared to 2005-06. The average size of the issues rose from Rs. 197 crore in 2005-06 to Rs. 270 crore in this financial year. In contrast to the trend in the previous financial year, substantial amount of fund mobilization was through large issues. There were 11 issues in the above Rs. 500 crore category, which mobilized Rs. 22,400 crore and 33 issues were in Rs. 100 crore– Rs. 500 crore category, which mobilized Rs. 7,537 crore.

In the secondary market, during 2006-07, the benchmark indices crossed many milestones. The BSE Sensex and S&P CNX Nifty recorded gain of 15.9 per cent and 12.3 per cent, respectively over March 31, 2006. The BSE Sensex gained 1792 points during the financial year to close at 13072 on March 31, 2007 from 11280 as on March 31, 2006. In the first quarter, stock markets remained buoyant till May 10, 2006, but witnessed large correction during the rest of May 2006. On May 10, 2006 both the BSE Sensex and the S&P CNX Nifty closed at high level of 12612 and 3754, respectively. In the second quarter of the year, the stock markets gained buoyancy, despite the rise in the crude oil prices, on account of strong performance of the economy in the first quarter, improved credit rating, and active support from institutional investors. In the third quarter, fall in the crude oil prices led to an upward trend in, both local and global markets. However, towards the end of third quarter, in December 2006, the indices declined once again, on account of hike in Cash Reserve Ratio (CRR) by RBI, low growth in manufacturing sector and year-end profit booking. In the fourth quarter, there was a sustained gain in the markets, followed by a rise in the benchmark indices. The BSE Sensex closed at an all-time high of 14652 on February 8, 2007. At this point of time, the major concern of the economy was rising inflation which might impact the growth rates. The high inflation forced RBI to tighten monetary measures with a rise in CRR, repo rates, and bank rate.

In tandem with the rise in the equity market, there was a rise in the market capitalisation and turnover in 2006-07. The turnover in the cash segment of NSE and BSE rose by 23.9 per cent and 17.2 per cent, respectively in 2006-07 over the previous year. The increase in turnover at the derivatives segment of NSE was 52.3 per cent during the same period.