India's Financial Markets: An Insider's Guide to How the Markets Work
by Michael Gorham, Ajay Shah, and Susan Thomas
Quick Summary
A comprehensive guide to India's financial markets written for global financial professionals, covering the country's economic growth trajectory, equity and debt markets, derivatives exchanges, currency markets, real estate investment, and routes of entry for foreign investors. Provides both institutional knowledge and practical insights for practitioners planning an India strategy.
Detailed Summary
Michael Gorham (professor), Ajay Shah, and Susan Thomas (described in the foreword as "the foremost independent financial economists in India today") provide a practitioner-oriented guide to India's financial markets, targeted at global financial professionals who need to understand, plan, and execute an India investment strategy. The book assumes familiarity with stock, bond, currency, and derivatives markets and builds from that foundation to describe the specific characteristics of Indian finance.
The economic backdrop chapter traces India's growth acceleration from a disappointing 3.5% GDP growth rate between independence in 1947 and 1979 (with 2.2% population growth yielding only 1.3% per capita GDP growth) to a trend rate of approximately 7.5% by the mid-2000s. The authors frame this acceleration within the context of liberalization reforms beginning in 1991 and the accompanying demographic dividend.
The book provides detailed coverage of India's equity markets, including the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE), which by 2008 represented a market capitalization of $1.8 trillion for the top 3,000 firms. The evolution of market microstructure is traced from the pre-reform era of open-outcry trading with settlement difficulties through to the creation of technologically advanced electronic exchanges that rank among the most proficient globally.
The debt markets chapter covers government securities, corporate bonds, and the role of the Clearing Corporation of India Limited (CCIL). The derivatives market analysis examines the "belated emergence and subsequent lopsided development" of exchange-traded derivatives, particularly the dominance of index options and the relative underdevelopment of commodity and interest rate derivatives.
The currency markets section details the managed float regime, the evolving role of the Reserve Bank of India, and the practical mechanics of foreign exchange operations. The real estate chapter addresses the increasing role of property investment in Indian portfolios, with insights from industry practitioners including developers and real estate researchers.
A particularly valuable chapter covers routes of entry into India for foreign investors, including the Mauritius treaty route, Foreign Institutional Investor (FII) registration, participatory notes, Foreign Direct Investment (FDI) regulations, and private equity structures. The authors are candid about the regulatory complexity, describing the landscape as "cluttered with detail" and "littered with detritus from decades of obsolete government policy."
The book positions India between the more developed emerging markets (ahead of China but behind Brazil and Chile in market development) and globally significant markets like Singapore, providing an honest assessment of both progress achieved since the 1992-1993 reforms and the substantial work remaining to bring Indian financial markets to global standards. The foreword by Percy S. Mistry of Oxford International Group describes the book as "indispensable" for anyone with a professional or investment interest in Indian finance.
