The integration of Artificial Intelligence (AI) within the Indian capital market has emerged as a transformative force, reshaping market dynamics and presenting both opportunities and challenges. This study examines the multifaceted impact of AI on various components of the capital market ecosystem, including equity markets, debt and credit markets, derivatives markets, intermediaries and infrastructure, and regulatory bodies such as SEBI and RBI. The analysis indicates that AI applications enhance market efficiency, risk management, fraud detection, and personalized investment advice. In equity markets, AI facilitates algorithmic trading, portfolio optimization, and behavioral insights for both institutional and retail investors. Debt and credit markets benefit from improved credit risk assessment, debt recovery, and compliance with regulations. AI enables predictive analytics, sentiment analysis, and risk management in the derivatives markets. Intermediaries and infrastructure leverage AI for enhanced algorithmic trading, credit scoring, and improving operational efficiency. Regulatory bodies utilize AI for effective fraud detection, compliance monitoring, and supervision. The integration of AI presents opportunities for improved market quality, democratization of financial tools, enhanced stability and integrity, increased liquidity, and accurate forecasting. However, challenges arise from algorithmic complexity, data ethics concerns, lack of transparency, regulatory gaps, data privacy issues, and potential job displacement. This study emphasizes the crucial role of SEBI in ensuring transparency, accountability, and fairness as AI is integrated into the capital market. Developing innovative regulatory frameworks, collaborating with stakeholders, addressing ethical concerns, and promoting financial literacy are key imperatives for the SEBI. These findings underscore the need for a balanced approach to harness the benefits of AI while managing the associated risks, fostering innovation, and ensuring market stability. Further research is necessary to explore the long-term implications of AI on market dynamics, investor behavior, and regulatory frameworks in the Indian context.