Stock markets

Story hook

On 23 March 2022, LIC of India filed its DRHP (Draft Red Herring Prospectus) with SEBI. It would be India's biggest IPO ever — selling 3.5% of the government's stake in LIC at a target size of Rs.21,000 crore. The valuation: ~Rs.6 lakh crore. Sebi cleared it in 23 days. The IPO opened on 4 May 2022 and closed on 9 May 2022 — heavily oversubscribed, with 6.4 crore retail bids worth Rs.49,000 crore.

But then the post-listing slide began. LIC listed at Rs.872 against the IPO price of Rs.949 — a 9% loss on day one. By August 2022, it was trading at Rs.624 — 34% below issue price. Retail investors were sitting on heavy losses. By March 2024, it had recovered to ~Rs.1,000, but the experience left a generation of new retail investors wary.

The LIC IPO illustrated three structural facts about Indian capital markets:

1. Scale: India is the world's 5th-largest equity market by capitalisation (over Rs.460 lakh crore by 2025). NSE is among the top 10 stock exchanges globally by trading volume and number of trades.

2. Retail boom: From ~2 crore demat accounts in 2014 to 17 crore demat accounts in 2025 — among the fastest financial inclusion stories in history. UPI, mutual funds via SIPs, and discount brokers (Zerodha, Groww, Upstox) drove this expansion.

3. Regulatory complexity: A market this large needs robust oversight. SEBI, the apex regulator, has emerged as one of the most active financial regulators globally.

For UPSC, capital markets are tested as Prelims facts (SEBI Act 1992, NSE established 1992, BSE 1875, SCRA 1956, Companies Act 2013) and Mains questions (regulation of NBFCs, mutual funds, foreign investment, IBC interaction, IPO regulation, derivatives, recent SEBI reforms).

Why this matters for UPSC

India's capital markets channel:

• Domestic savings into productive investment
• Foreign portfolio investment (FPI) flows
• Equity financing for businesses
• Wealth creation for households (now ~17 crore demat accounts)
• Government disinvestment (LIC, BPCL, others)
• Insolvency resolution (IBC + IBBI work through capital market intermediaries)

For UPSC:

• Prelims: SEBI Act 1992, SCRA 1956, Companies Act 2013, SCRR 1957, Depositories Act 1996, primary vs secondary, equity vs debt vs derivatives, IPO/FPO/OFS, T+0 settlement.
• Mains GS-III: SEBI's evolving regulation, recent reforms (T+0, F&O lot sizes, regulatory sandbox), foreign investment framework, NBFC + bank-capital-market interlinkages, IBC outcomes, retail investor protection.
• Mains GS-II: SEBI's investigative powers, parliamentary oversight, RBI-SEBI coordination.

This file covers SEBI architecture, major exchanges, market intermediaries, primary + secondary markets, derivatives, mutual funds, FPIs + FDIs, recent reforms.