An enhanced governance framework is imperative for proper functioning and growth of the capital markets in the country, says a study by PricewaterhouseCoopers (PwC) and industry body Assocham.

The domestic capital markets have evolved significantly over the past two decades and have potential to grow further through enhanced governance, the report said.

The study maps the journey of capital markets from the pre-reform era (before 1991) to the present day.

It points out that the capital markets have seen enormous upheaval in the last decade, with the BSE benchmark index Sensex sniffing at 22,000 mark and then declining sharply due to market pessimism based on global cues.

"While a lot has been achieved in the last few years, we can do more to encourage further innovation and to enable the capital markets perform their function of financial intermediation within the governance framework, to meet the needs of this fast growing economy," PwC transaction leader Bharti Gupta Ramola said today while releasing the report.

The liberalisation of the economy has increased the flow of foreign direct investment and has put India on the global map, as a new-age economic force to reckon with, the study added.