Are Indian capital markets driven only by a few stocks?

Abstract

Capital markets are key components in an economy. They perform the crucial function of acting as a bridge between investors, who have surplus funds, and companies, which require funds, thereby leading to an efficient allocation of capital. An efficient capital market also acts as a representative of the economy. The Indian capital markets are relatively young (the Bombay Stock Exchange was recognised by the government in 1957, even though it was founded in the 1800s and the National Stock Exchange was founded in 1992) because of which the number of new investors and companies is growing rapidly. Therefore, a study of Indian capital markets and its efficiency is highly necessary. Through the study, we will analyse the composition of the stock market and the change in composition and investor behaviour over the years. The value of shares traded, i.e., the traded value, and the market capitalisation are essential parameters for stock market participants (investors, traders, etc.) to invest in a particular stock. It is therefore crucial that capital markets have broad-based movement and are not just dictated by few stocks. So, we aim to answer the following questions: Is the activity in the stock market restricted to only a few shares? If so, what are its implications and how can an investor earn above-average returns in such a market?. Through the study, we would like to find out whether only a few stocks drive the market and, if so, the reasons and the implications of the same.