Principal weaknesses of stock market of India The stock market in India suffers from number of weaknesses.

The principal ones are mentioned below: Poor communication system -In my opinion, the communication system of the stock market in India is rather poor. Thisis clear from the fact that brokers often do not report their transact ions to the exchange authorities and clients do not know how much commission the brokers charge. Lack of professionalism -While there are brokers who are highly professional in their dealings, the majo rity of brokers seem to lack high professional standards. Many of them lack the professional expertise to guide and counsel their clients. Further, they resort to actions, which may hurt the interests of their clients. A senior member of t he governing board of the BSEobserved: The lack of professionalism is our sore po int and we do not have a proper mechanism to weed out the undesirables. Dominance of financial institutionsThe stock market in India is significantly influenced by the actions of financia l institutions. Even though the operations of these institutions are confined to a small group of shares, there impact is often quite pervasive. Under the influ ence of institutional buying, the market turns buoyant; contrariwise, under the pressure of institutional selling,the market becomes depressed. Poor liquidityThe Indian stock exchanges suffer from poor liquidity. Barring a small proportio n of scrips, which are actively traded and highly liquid, most are traded infreq uently and,hence, lack liquidity. Weak regulationEven though the Securities Contracts and Regulations Act vests the government w ith substantial powers, the regulation in practice tends to be somewhat ineffect ive. The stock exchange division of the Ministry of Finance, which is supposed t o supervise and control the stock exchanges, appears to be grossly understaffed and overburdened. There appearsto be a crying need to strengthen the regulatory machinery because of phenomenal growth in the volume of trading. Price distortionDue to speculative influences and other irrationalities and imperfections, stock pricestend to get distorted. The market seems to function largely on a hit or mi ss basis rather than on the basis of informed beliefs about the long-term prospec ts of individual enterprises. Kerb tradingTransaction between brokers who assemble outside the stock exchange after market hoursare referred to as kerb transactions . Though considered a punishable offence , kerbtrading flourishes and the issue whether it is legal or illegal is conside red irrelevant bymost brokers. In fact, brokers often report kerb transactions a long with transactions doneduring official business hours.

Some of the important defects or drawbacks of indian money market are :1. Absence of Integration : The Indian money market is broadly divided into the Organized and Unorganized Sectors. The former comprises the legal financial inst itutions backed by the RBI. The unorganized statement of it includes various ins titutions such as indigenous bankers, village money lenders, traders, etc. There is lack of proper integration between these two segments. 2. Multiple rate of interest : In the Indian money market, especially the banks, there exists too many rates of interests. These rates vary for lending, borrowi ng, government activities, etc. Many rates of interests create confusion among t he investors. 3. Insufficient Funds or Resources : The Indian economy with its seasonal struct ure faces frequent shortage of financial recourse. Lower income, lower savings, and lack of banking habits among people are some of the reasons for it. 4. Shortage of Investment Instruments : In the Indian money market, various inve stment instruments such as Treasury Bills, Commercial Bills, Certificate of Depo sits, Commercial Papers, etc. are used. But taking into account the size of the population and market these instruments are inadequate. 5. Shortage of Commercial Bill : In India, as many banks keep large funds for li quidity purpose, the use of the commercial bills is very limited. Similarly sinc e a large number of transactions are preferred in the cash form the scope for co mmercial bills are limited. 6. Lack of Organized Banking System : In India even through we have a big networ k of commercial banks, still the banking system suffers from major weaknesses su ch as the NPA, huge losses, poor efficiency. The absence of the organized bankin g system is major problem for Indian money market. 7. Less number of Dealers : There are poor number of dealers in the short-term a ssets who can act as mediators between the government and the banking system. Th e less number of dealers leads tc the slow contact between the end lender and en d borrowers. INACTIVE AND ERRATIC CAPITAL MARKET: The important function of any capital market is to promote economic development through mobilization of savings and their distribution to productive ventures. A s far as industrial finance in India is concerned,corporate customers are able t o raise their financial resources through development banks. So, they need not g o to the capital market. Moreover they don t resort to capital market since it is very erratic and inactive. Investors too prefer investments in physical financial assets. The weakness of t he capital market is a serious problem in assets to investments in our financial system.