5 Development of Securities Markets: The Indian Experience

Table 5.1. Pattern of Sources of Funds for Indian Corporates
1985–86 to
1990–91 to
1995–96 to
2000–01 to
Item
1989–90
1994–95
1999–2000
2003–04
Internal Sources
31.9
29.9
37.1
61.4
External Sources
68.1
70.1
62.9
38.6
Of which:
Equity capital
7.2
18.8
13.0
9.7
Borrowings
37.9
32.7
35.9
10.4
Of which:
Debentures
11.0
7.1
5.6
–1.2
From banks
13.6
8.2
12.3
19.0
From financial institutions
8.7
10.3
9.0
–1.4
Trade dues and other 
current liabilities
22.8
18.4
13.7
17.7
Total
100.0
100.0
100.0
100.0
Memorandum items:
Share of capital market–related 
instruments (debentures and 
equity capital)
18.2
26.0
18.6
8.4
Share of financial intermediaries 
(borrowings from banks and 
financial institutions) 
22.2
18.3
21.3
17.5
Debt-equity ratio 
88.4
85.5
65.2
62.8
Source: Articles on “Finances of Public Limited Companies,” RBI Bulletin (various issues).
Note: Data pertain to nongovernment nonfinancial public limited companies.

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©International Monetary Fund. Not for Redistribution
Narendra Jadhav 121
The Indian stock markets have become more stable thanks to the 
strengthening of the market design and risk containment measures. This 
is reflected in a sharp decline in the volatility of stock prices, measured by 
the coefficient of variation for the BSE Sensex (Figure 5.5).
Liberalization and consequent reform measures have drawn the atten-
tion of foreign investors, leading to a rise in portfolio investment in the 
Indian capital market. FIIs emerged as the largest institutional investors in 
the Indian equity market in the 1990s. Apart from providing institutional 
character to the capital markets, FIIs inject global liquidity into the markets 
and reduce the cost of capital. From the perspective of FIIs, investments in 
various countries provide an excellent measure of portfolio diversification 
and hedging, and also take advantage of arbitrage opportunities. Over 
recent years, India has emerged as a major recipient of portfolio invest-
ment among emerging market economies. Because of such large inflows, 
reflecting the confidence of cross-border investors in the prospects of the 
Indian securities market, India received positive portfolio inflows each year 
except one. The stability of portfolio flows toward India contrasts with the 
large volatility of portfolio flows in most emerging market economies. FII