Indian Stock and Bond Markets Do You

¶ … Indian Stock and Bond Markets Do you think an investment in the Indian stock market is a good long-term investment? The Indian stock market has experienced a number of fluctuations over the past 20 years or so that would suggest that investors might want to adopt a "wait-and-see" approach before making the plunge into these financial waters.

For example, Schmidt and Hersh emphasize that, "The history of the operation of the Indian stock market has been dotted with brokers often unable to meet their commitments, allegations and proved instances of insider trading, and deliberate manipulation of stock prices by bears and bulls" (2000, p. 131).

The prices for stocks listed on the Indian stock have experienced a number of highs and lows, with the most significant boom taking place during the period 1993 to 1995; however, although there have been some spikes, there has been a downward trend experienced since that time (Schmidt & Hersh, 2000). Based on his more recent analysis of the Indian stock market for the period from January 1996 to December 2005, Kumar (2007) found that besides 1997 and 2003, the Indian stock market offered negative return on a daily basis.

Based on India's increasing integration into the global economy, Kumar (2007) also cautions that India's economy and its stock market have become increasingly susceptible to downturns in the global economy and skyrocketing energy prices. Moreover, fluctuations in the Indian stock market have a profound effect on the economies of neighboring countries as well. For instance, Thiripalraju and Acharya identified "significant positive and bidirectional contemporaneous return spillover among Indian stock market and that of other Asian countries in daytime period.

It was also found that stock market movements in Pakistan and Sri Lanka were strongly influenced by movements in Indian stock markets" (2010, p. 80). These factors suggest that notwithstanding the burgeoning economy of India, the Indian stock market remains highly volatile and investors should look elsewhere for long-term investments for the time being.

Do you think an investment in the Indian debt securities is a good investment? On the one hand, Kotak (2011) enthuses that, "The Indian Debt Markets are today poised on the threshold of momentous change and transition to an efficient, transparent and vibrant market with significant retail participation" (para. 3).

On the other hand, though, Sen, Bahel and Ranjan (2003) emphasize that, "Debt markets in India have suffered from chronic neglect on the part of policy makers, despite the fact that there is clear evidence of fairly strong debt preference among households for their financial investment portfolio" (p. 3). Notwithstanding Kotak's (2011) recent observations concerning the "threshold" on which Indian debt securities are poised, Sen and his associates suggest that this market has not yet achieved sufficient maturity to warrant investments, particularly by smaller investors.

In this regard, Sen and his colleagues point out that not only is the debt securities market virtually non-existent, "Very little has been done to create the infrastructure required for an efficient and developed debt capital market. In fact, the debt markets in India are currently at a similar stage of their evolution as the equity markets were prior the reform process in the early 1990s".