The financial sector liberalization that started in India in the early 1990s was based on the various recommendations provided in the Narasimham Committee Report on the Financial System, submitted in September 1992. Financial market reform was an integral part of the financial sector reform that brought gradual improvement in the functioning of the Indian stock market. These reforms were aimed at enhancing competition, transparency and efficiency in the Indian financial market. The reform in the Indian stock market brought a paradigm shift in the functioning and structure of the market that was guided by two broad themes—structural transformation and speedy access to information. On one hand, massive institutional reforms were undertaken to improve the functioning of the market. This resulted in greater participation of both individual and institutional investors. On the other hand, advances in information technology facilitated computerization on a large scale and Internet trading facilitated trading from any part of the country.

Few notable developments in this direction were; the permission given to the private sector to enter into the mutual fund industry (earlier dominated by Unit Trust of India (UTI) since 1992-93). Since September 1992 foreign institutional investors were permitted to invest in Indian capital market and Indian companies were allowed to raise funds abroad through GDRs and ADRs. The Indian capital market integrated more with the world market since 1999, when Indian companies started listing on foreign stock exchanges, especially in the Nasdaq.