Skip to content

Invest & Trade Smarter with Fisdom App

Get a FREE Fisdom account for Stocks, Mutual Funds & more, all in one place

Download Fisdom app

Indian Financial Market – Recent  Trends & Roles

Written by - Marisha Bhatt

February 16, 2023 7 minutes

The strength of any modern economy is based on the soundness of its financial system. We have all seen the impact of a collapsing financial system in our neighboring countries. The financial system of a country comprises of a few main elements namely, financial institutions, financial markets, financial instruments, and financial intermediaries. Here are recent trends in the Indian financial market..

Indian Financial Market – Composition

Financial markets refer to the institutions, mechanisms, and platforms that enable the buying and selling of financial assets such as stocks, bonds, currencies, commodities, and derivatives. The main purpose of financial markets is to facilitate the transfer of funds from savers to borrowers, providing a means for individuals, organizations, and governments to invest and finance their activities.

The Indian financial market refers to the system of institutions, instruments, and regulations in the country that are instrumental in facilitating the transfer of funds between different participants of the market. It includes the following components. 

  • Capital Market

This is the market for long-term investments in different securities like stocks and bonds. The process of trading in these securities is governed by the Securities and Exchange Board of India (SEBI).

  • Money Market 

This is the market where investors and traders can trade in short-term borrowing and lending of funds, such as treasury bills and commercial papers.

  • Commodities Market

The commodities market refers to the market for buying and selling commodities, such as gold, silver, and agricultural products, regulated by the Securities and Exchange Board of India (SEBI).

  • Foreign Exchange Market

This market is regulated by RBI and is the platform for trading in the currency of different nations. 

  • Banking System

The banking system of the country is a network of commercial public sector and private sector banks, cooperative banks, and regional rural banks. The banking system is responsible for providing a secure environment that provides various financial services, including deposits and loans.

  • Mutual Fund Industry

The mutual fund industry is where investors invest in a fund that is a pool of money from various investors and the fund invests in different investment products like stocks, bonds, and other securities. 

  • Insurance Market

The insurance segment is one of the pillars of the financial market of the country. There are diverse insurance products in India like life insurance, health insurance, general insurance, etc. and the industry is regulated by the Insurance Regulatory and Development Authority of India (IRDAI).

  • Pension Market

Pensions are an important instrument and part of the financial market. This market and the pension products are regulated by the Pension Fund Regulatory and Development Authority (PFRDA) in India. 

The Indian financial markets have witnessed many changes in recent years and are faced with everchanging trends that ultimately shape the financial markets. Some of the recent trends in the Indian financial markets are highlighted below. 

  • Growth of Digital Finance

There has been an exponential increase in digital finance in India over recent years. This is further backed by various measures under the ‘Digital India’ vision of the government. This includes digital payment methods such as UPI, mobile banking, and e-wallets. This growth is also the result of the increase in internet and smartphone penetration which has taken digital finance to even the rural parts of the country.

  • Focus on Financial Inclusion

Financial inclusion has been the focus of the Indian government and regulators for many years now. Many measures for financial inclusion include increasing access to financial services for under-served populations such as farmers and small businesses.

  • Rise of Mutual Funds

Mutual funds have become increasingly popular and a staple among retail investors as a way to invest in the stock market. The introduction of direct plans has also made them more accessible and cost-effective for the average investor. 

  • Increased Focus on ESG Investing

Social consciousness has been increasing greatly among the public at large over the years. This has therefore resulted in an increase in Environmental, Social, and Governance (ESG) investing which is gaining prominence as investors increasingly seek to align their investments with their values.

  • Emergence of Robo-Advisors

Financial markets have also seen a rise in Robo-advisors. These are algorithms that provide investment advice based on AI. Such platforms are becoming quite popular by offering low-cost and personalized investment solutions to businesses and investors.

These trends are shaping the future of the Indian financial market and are likely to continue to drive growth and innovation in the years to come.

Role of Financial Market

The financial market plays a crucial role in the functioning of an economy. Some of the key roles of financial markets are highlighted below.

  • Allocating Capital

Raising capital is one of the primary functions of the financial markets. Financial markets provide a platform for investors to allocate their capital to various financial instruments such as stocks, bonds, and mutual funds. This helps companies and governments to raise adequate funds for their operations.

  • Facilitating Investment

Financial markets make it easier for individuals and institutions to invest their money. This provides them with an opportunity for diversifying their portfolios and managing their financial assets.

  • Providing Liquidity

Financial markets ensure adequate liquidity in the market for investors for easy entry and exit opportunities. This enables them to quickly buy or sell assets as their financial needs change.

  • Price Discovery

Financial markets help determine the price of financial instruments by bringing together buyers and sellers. This provides an opportunity for fair price discovery through the basic functions of demand and supply thus providing a fair and transparent price for each asset.

  • Risk Management

Financial markets provide risk management opportunities for investors through the use of derivatives such as options and futures.

  • Promoting Economic Growth

Financial markets facilitate the flow of capital and ensure that is put to its most productive use. This is crucial for promoting overall economic growth and the development of the economy.


Financial markets provide investors with an equal opportunity to invest in different asset classes. This mobilising of investments is crucial for the movement of funds in the economy and its ultimate growth and progress. Financial markets are also instruments in job creation in the economy and can also prove to be a good opportunity for alternate career options. 


What are the key participants in the structure of a financial market?

The key participants in the structure of a financial market are the types of the market, the instruments that are traded in the market, and the regulators of the market

How are financial markets classified on the basis of the nature of the claim?

Financial markets are classified into debt market and equity market on the basis of the nature of the claim

How is the capital market different from the money market?

Capital markets deal with the assets like equity and debt and can be for varied time frames like short-term to long-term investments. Money market on the other hand deals with short-term debt securities

Who are the key intermediaries of the financial market?

The key intermediaries of the financial markets are the regulators, stock exchanges, bankers, brokers, and underwriters

Other interesting reads

Download one of India's best wealth management apps

Join more than one million investors and take control of your wealth

Download app