The structural reforms gave an opportunity to introduce some fundamental changes in the approach to the economic policy. They aimed at removing the rigidities that had entered into the various segments of the Indian economy. These broadly covered the areas of industrial licensing, foreign trade, foreign investment, and the financial sector. Industrial policies were framed to create a more competitive environment in the economy through improving the productivity and efficiency of the system. Removal of the barriers to entry also brought great competitive environment domestically. The private sector was given larger space in areas, which was hitherto reserved for public sector only.

The Indian capital market has undergone tremendous changes since the early 1990s. The Indian capital market has evolved as a major source of funds for the Indian corporate sector. A number of structural and institutional changes in different segments of the financial market have taken place, which have brought about dramatic changes in the financial architecture of the economy.

The macroeconomic variables, such as interest rate, money supply, inflation, Index of Industrial Production (IIP), and investment spending, have been cited as a driving force for the stock market prices, as stock market plays an important role in the economy by mobilizing domestic resources and channelizing them into productive investments. There are also perceptions that stock markets are generally `irrational exuberance' and do not have a connection with the real economy.

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