Integration of India’s Financial Markets on the Domestic and International Fronts: An Emperical Analysis of the Post-Liberalisation Period. June 2010

Against the backdrop of financial liberalisation, this paper examines India’s financial integration, both on the domestic and international fronts. Preliminary analysis of the secondary data shows India’s capital market grew significantly during 2001-2007 in terms of the trading value of equities and bonds compared to some sample countries, covering both developed (Germany, Italy, US, UK) and emerging (China, Korea, Brazil) economies. Also, during this phase, empirical evidence reveals high liquidity in the Indian capital market. The increasing gross flow of capital across borders and increasing correlation among different asset returns of major financial markets in the last couple of years provide the premise of interlinkage across different segments of financial markets, domestic as well as international. [Working Paper No. 431]