Indian capital markets which witnessed a severe crash last week will face more challenges posed by general elections, interest rate, inflation, oil prices and a slowdown of the US economy, says a report.
The kind of population explosion India has been witnessing in the last couple of decades will spur growth, the report brought out jointly by the Federation of Indian Chambers of Commerce and Industry (FICCI) and Ernst and Young said.
But it will also see a large-scale increase in unskilled rural workforce, adding to the country's socio-economic problems, the report added.
Indian stock markets need to gear up to confront some of the global problems such as the fallout of the subprime mortgage crisis in the US and rising crude prices.
These will have adverse impacts on the country's exports due to increased profit bookings and portfolio adjustments, the report said.
"In order to address this, India needs to be more proactive and opt for energy efficiency, which will also help in reducing global warming," the report added.
"Biofuels are emerging as an effective substitute to oil. However, prolonged usage is likely to result in food-price inflation and the exploitation of natural resources."
The report also highlighted the need for regulators to improve the stability of capital flows from both domestic and international sources and discourage and adopt appropriate measures to check speculative flow of funds.
"Globally, regulators are taking a cautious approach towards adopting regulatory approaches to the new investor classes. India is no different," the report said.
"It is the stated intent of the regulators that cautious steps will be taken to regulate the new investor classes."
Indian capital markets would also benefit greatly if significant thrust is given to the growth of country's ailing infrastructure as the capital markets are one of the main providers of long-term capital.