Answer – The structure of the Indian Financial Markets is simple and easy to understand. But before going into the structure of the Indian markets let us first explore the layers of the Indian Financial Markets. After that we will look into the broader Indian Economy. There are two parts of the Indian Markets.
Organized Market – Markets that are regulated and governed by the Government of India for example – Registered companies, listed companies etc
Unorganized Market – Market that runs on its own for example street vendors, unregistered shops, unregistered small scale businesses etc.
We are going to discuss the organized sector of the market becaus our area of activity will be restricted to the organized sector.
Indian Economy at a Glance
Firstly, lets go back to school’s NCERTs where we have studied the 3 sectors of the Indian Economy.
- Primary Sector – Agriculture – 20.19% of GVA
- Secondary Sector – Manufacturing – 25.92 % of GVA
- Tertiary Sector – Services – 53.89% of GVA
*For most references GDP is used, however for our understanding we will use GVA for all our analysis because its a better metric than GDP when comparing sectors.
The exact replica of the Indian economy can be seen in the Indian Equitiy Markets. As a result of which banking, IT, logistics sector are dominating the indices of the exchanges. Finally from the above data we can see that the contribution of service sector in terms of GVA to our the Indian economy is maximum.
Layers of the Indian Financial Markets
Firstly, the Indian market is a layered structure similar to an onion. The following are the layers of the Indian markets
- Market makers
- Market participators
#1 Indian Market Makers
Firstly, the Indian market makers includes institutions. These institutions create a framework and formulate the rules, laws governing the markets. Secondly, these rules are based upon global best practices. Therefore, we can say that the objective of market makers is to create a fair, transparent and accountable mechnaism.
- Exchanges – Prominent are NSE and BSE
- Banks – All banks with banking lincenses from RBI
- Clearing Houses – List of Clearing Houses
- Depositories – NSDL & CDSL
- Registrars to an issue and Transfer Agent – There are many institutions approved by SEBI
- Depository participants – Mostly brokers and Corporation assigned by SEBI
#2 Indian Financial Markets Regulators
Firstly and foremostly the most Powerful layer of the market is the market regulators. Secondly, these institutions regulate the activity of market makers and market participants. Therefore both the parties have to adhere to the rules and regulations laid down by the market regulators. The market regulators are usually the government institutions. In India both the government as well as private bodies constitute the regulators.
- RBI – Reserve Bank of India
- Ministry of Finance
- Ministry of Corporate Affairs
- SEBI – Securities and Exchange Board of India
- PFRDA – Pension Fund Regulatory Development Authority
- IRDAI – Insurance Regulatory Development Authority of India
- AMFI – Association of Mutual Fund of India
There might be sector specific government entities as well, but broadly these are the major institutions. Therefore the list includes only prominent institutions.
#3 Market Facilitators
The role of the market facilitators is to innovate and create easy process for the onboarding of the market participators. Firstly, market facilitators are the agents of market makers. Secondly, they lure investors and institution by making the onboarding process easy and smooth.
- Brokerage Firms
- Issuer of Securities and Lead Manager to an Issue
- Registrar and Transfer Agents
- Sub brokers and other Agents like Insurance Agents
#4 Market Participators
Lastly, we the individuals contribute to the making of the market. Without people there is no market. All the institutions and regulations are made just to protect our interest.
- Resident Indian/ NRI / PIO/ OCI etc basically individual Indian
- Corporate bodies and institutions like Banks, Mutual Funds, Pension Funds, Insurance companies etc.
- Governments and foreign bodies
Last but not the least we have tried to paint a picture of the Indian market in a much simpler way. However there are many details which we have skipped like how do institutions govern the markets and so on. Basically what we are looking at is a skeleton, the bones, flesh, muscle and teeth will be added soon.
- Financial Planner