Unlocking Growth: India’s Stock Market Journey Post-Liberalization –Trends, Challenges, and Policy Perspectives

Abstract

The economic liberalization reforms of 1991 marked a pivotal moment in India’s financial history, transforming its stock market and integrating it into the global financial system. This paper presents a comprehensive analysis of the Indian stock market's evolution from 1980 to 2024, emphasizing key performance metrics such as market capitalization, liquidity, and volatility. Through a dual-method approach, integrating empirical and contextual analyses, the study investigates macroeconomic variables – GDP growth, inflation, and exchange rate fluctuations – and their impact on stock market performance. Hypotheses are tested using quantitative techniques, including Vector Error Correction Models (VECM) and Granger causality tests, complemented by qualitative analyses of regulatory reforms, financial inclusion, and comparative insights with other emerging markets. The findings reveal the critical role of regulatory institutions like the Securities and Exchange Board of India (SEBI) in enhancing market efficiency and investor confidence. They also highlight the dual impact of inflation, the influence of exchange rate volatility on foreign portfolio investments (FPIs), and the persistent regional disparities in market participation. Comparative analysis with Brazil, China, and Russia underscores India's unique liberalization trajectory, shaped by its democratic framework and gradualist approach. The study provides actionable insights for policymakers, including the need to address financial inclusion, strengthen regulatory compliance, and ensure resilience to global economic shocks. By integrating empirical evidence with contextual depth, this paper contributes to the discourse on emerging market financial liberalization and its implications for sustainable growth.