Importance of Capital Market for an Economy

  • It is only with the help of capital market, long-term funds can be raised by the business community
    • Existing companies, because of their performance will be able to expand their industries and also go in for diversification of businessdue to the capital market
  • Capital markets help individuals generate wealth and invest in their futures
    • It provides opportunity for the public to invest their savings in attractive securities which provide a higher return.
    • Also, capital market provides an opportunity for the investing publicto know the trend of different securities and the conditions prevailing in the economy
  • Further, capital markets provide the fuel for companies or entrepreneurs to turn an idea or industry innovation into an actual company or expansion for an existing firm
    • This in turn creates jobs and spurs economic growth
  • A well-developed capital market is capable of attracting funds even from foreign country. Thus, foreign capital flows into the country through foreign investments
  • Capital market is the barometer of the economy,by which one can assess the economic conditions of the country, which further helps government to take suitable action
  • Capital market provides opportunities for different institutionssuch as commercial banks, mutual funds, investment trust; etc., to earn a good return on the investing funds.
    • They employ financial experts who are able to predict the changes in the market and accordingly undertake suitable portfolio investments
  • Capital markets match borrowers and investors, acting as shock absorbers during times of economic stress or market turmoil, when bank lending can dry up.
    • By diversifying risk, capital markets provide a stable source of fuel for companies, governments and therefore economies.