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Explained: Why India's market cap is likely to hit $10 trillion by 2030

Equity raise through IPOs in FY25 could exceed Rs 1 lakh crore

sensex, stock market, share market

Illustration: Binay Sinha

Sunainaa Chadha NEW DELHI
 India's market cap is currently the fifth largest globally ($4.5 trillion) and is likely to hit $10 trillion by 2030, according to a report titled ‘Recap 2024. Crystal Gaze 2025’ by  financial conglomerate Pantomath Group.

 The US ($44.7 trillion), China ($9.8 trillion), Japan ($6 trillion) and Hong Kong ($4.8 trillion) are currently ahead of India in the market cap race. India is expected to become the third-largest economy by 2027, and the market cap will hit $10 trillion by 2030, the report added.

In FY2024, the Indian equity market witnessed a phenomenal performance as benchmark indices soared to unprecedented all-time highs, with the Nifty and Sensex scaling milestones of 22,526.60 and 74,245.17 mark respectively.

Indian equity emerged as one of the best-performing markets in the last four years. Indian Market ended time-wise correction in March 2023 last year and then started to rally & continued its strong momentum till now. On the other hand, broader indices outperformed; the NSE Midcap 100 and NSE Smallcap 250 advanced around 60.06% and 63.07%, respectively, in FY2024 till now. India's market cap reached $4.5 trillion as of February 2024.

The Indian corporate earnings began to show improvement, with companies benefiting from a softening in commodity prices, leading to enhanced profitability and margins. Companies are expected to continue strong performance in the upcoming quarters, driven by a robust domestic demand environment, positive macroeconomic factors and private capex revival. It's a positive trigger for Indian equity markets. The year we witnessed robust Industrial Production (IIP) growth and favorable PMI data, indicating an expansion in output at an above-trend pace.

 "The Indian corporate earnings began to show improvement, with companies benefiting from a softening in commodity prices, leading to enhanced profitability and margins. Companies are expected to continue strong performance in the upcoming quarters, driven by a robust domestic demand environment, positive macroeconomic factors and private capex revival. It's a positive trigger for Indian equity markets," noted the report.

“We continue to be bullish on some of the sectors like Auto and Auto Ancillary, Cements, Defence, Railways, Consumer Durables, Energy, Logistics, FMCG, Capital Goods and Engineering, Infrastructure, Construction, Banking, and Financials, etc., which are going to be outperformers in the rally ahead. Some of the laggard sectors also have some value buying opportunities to accumulate at lower levels, including Information Technology, Specialty Chemicals and Metals, etc," said Devang Shah, Head Retail Research, Asit C Mehta Investment Interrmediates Limited (ACMIIL).

Lok Sabha Election in 2024 and RBI Interest Rate Cut

Moving ahead in FY2025, the focus will be on the Loksabha elections, with a hope of continuation of economic reforms and policies as the ruling government is expected to retain power. This outcome instils confidence in both domestic and global investors, encouraging long-term investments in the Indian equity markets, given the anticipated continuity of policies and reforms. 

Emerging industries poised for investment-led growth in 2024 are:
Battery energy storage solutions, green hydrogen, biotechnology, AVGC (animation, visual e ects, gaming, comics), and semiconductor chip manufacturing, assembly, and design. Foreign companies looking at the Indian market are at an advantage as state governments are flexible and offer competitive sops to attract cutting-edge technology and generate large-scale employment.

"These have all been on a hot streak in 2024, as foreign direct investment (FDI) policies have relaxed in recent years, and production- linked incentive (PLI) schemes have promoted industry-wise capacity building. India's digital economy will continue to attract investors as technology-based solutions are sought to transform people's lives, governance, and enterprise operations. The rapid growth in demand for online products and services reflects the increasing
spending power of India's non-metropolitan (tier-2 and tier-3) cities," noted the report. 

Most sought skills in 2024 
So far, the export performance of the mobile industry is a first step in the direction of deeper supply chain engagement. Furthermore, India has intensified its decarbonisation initiatives amid shifts towards renewable energy and aims to achieve 500 GW of renewable capacity by 2030. In the corporate sector,sustainability and ESG are on the radarof top organisations and manufacturing enterprises, as green tech skills will influence hiring decisions for key roles in 2024. According to an industry report by TeamLease Digital, India's green industry is expected to add 3.7 million jobs by FY 2024-25 to 18.5 million. The top sought skills are in renewable energy, environmental health safety, solar energy, corporate social responsibility, and sustainability. Sustainability entails a commitment to diminish the carbon footprint across enterprise operations, including buildings, production and service processes,
Equity raise through IPOs in FY25 could exceed Rs 1 lakh crore
The Indian IPO market has been on an upward trajectory, witnessing remarkable growth and emerging as a global hotspot for companies seeking to raise capital. In the fiscal year 2023-24 (FY24), a staggering 76 companies tapped into the public markets through mainboard IPOs, raising nearly Rs 62,000 crore – a 19% increase compared to the previous fiscal year.

The average first-day gains stood at 28%. Meanwhile, over 70% or 55 stocks, are still trading above their issue price. The gains can be attributed to several factors. The buoyant secondary markets, the enthusiastic participation of retail investors in IPOs, and the strong flows from institutional investors played a significant role in these gains.

In FY24, the Nifty 50 ended the session with a 29% gain, and the Nifty Smallcap 100 and the Nifty Midcap 100 index gained 70% and 60%, respectively. Mutual funds bought shares worth 1.9 trillion while foreign portfolio investors were net buyers worth 2 trillion. The S&P BSE IPO Index, a gauge tracking the after-listing performance of newly listed companies, rose 69% this financial year. The rally in the small and midcap segments has also benefited newly listed stocks because most belong to this basket. The overall public equity fundraising, including from FPOs, OFS, and other avenues, increased by 142% to Rs 1.86 lakh crore in FY24 from Rs 76,911 crore in FY23.

Companies from multiple sectors were able to tap the IPO market in FY24. However the traditionally dominant financial sector, demonstrated restrained activity, raising Rs 9,655 crore, which accounted for less than a fifth of the total capital raised. New-age technology companies were also few, with just three IPOs of Yatra, Mamaearth and Zaggle hitting the market. The response of retail investors was also higher compared to the previous financial year. The average number of retail applications rose to 1.3 million from about 0.6 million in the previous financial year. The response was due to strong post-listing performance. The average listing gains rose to 29% in FY24 against 9% in the previous financial year.

"The IPO market is buzzing with anticipation as a multitude of innovative and captivating offerings are poised to hit the market, buoyed by India's robust economic growth. With FY2025 on the horizon, expectations are high for yet another stellar year for IPOs. This optimism is fuelled by a confluence of factors, including the surge in domestic capital, enhanced governance practices, the vibrant spirit of Indian entrepreneurship, and favourable government policies bolstered by FDI support. Moreover, the landscape is enriched by the rising tide of financial literacy and the unwavering commitment of institutional investors," noted the report.

 Companies that had previously deferred their IPO plans are now poised to make their debut, capitalizing on favorable market conditions. Anticipating a surge in demand and backed by robust market practices, both domestic and foreign investors are showing keen interest in primary markets, setting the stage for a flurry of new listings, the report added.

  A total of 56 companies have filed their documents with SEBI targeting to raise Rs 70000 crore.

Currently, 19 companies have secured SEBI approval to raise Rs 25,000 crore, while additional 37 companies, eyeing a substantial Rs 45,000 crore, and eagerly await regulatory clearance. Notably, among these 56 prospective IPO candidates, 9 are the new-age tech firms, collectively seeking to raise around Rs 21,000 crore.

 The report anticipate that equity-raise through IPOs in FY25 could exceed Rs 1 trillion. This figure could potentially increase even further if there are no global shocks affecting the Indian market.

 India is poised to be the engine of growth in the next 10 years

" India has emerged as one of the fastest-growing economy, surpassing even China, with an impressive GDP growth rate of 7.3%. The Gross Fixed capital formation is an important parameter that decides the fate of GDP especially for growing and developing economies like India. The Gross Fixed capital formation was around 30% of GDP in 2023. To double the country's GDP by 2030 without excessive leverage, India would need additional equity capitalisation of Rs 2.5 lakh crore every year for the next 7 years. Secondly, the similar size of equity capitalisation is also desired from an investor perspective, considering the anticipated domestic inflow to the capital market. Looking from the investor's perspective, ensuring the vibrancy of our capital market is crucial, given our high promoter holdings and anticipated inflows," said Prasanna Pathak, Managing Partner, India Inflection Opportunity Fund.

The current market capitalization of India is approximately Rs 310 lakh crore. Promoter ownership in India is one of the highest at 50% vs 20-25% average for most other larger markets. Thus, the free-float for Indian markets is one of the lowest. Also, as per the latest ownership data in the Indian market, 16-18% is owned by Foreign Institutional Investors (FII's) and around 20% by Domestic Investors (DII's), said the report. 

 Thus, the actual public float is just 12-15%. This translates into a public float of just Rs45-50 lakh crore. The current domestic inflows from Mutual Funds, Insurance, Pension, PMS, AIF are to the tune of Rs 3 lakh crore per year. 

"Assuming net-zero FII flows, the public float may last for only 15 years. Therefore, there is need for matching fresh equity issuances every year to maintain a balance and keep our marketplace an attractive destination for investors.

 India's stock market is big (Rs 310 lakh crore) but most of the companies are owned by a small group of insiders (promoters) - around 50% compared to 20-25% elsewhere. This means there are fewer shares available for regular investors to buy (public float is low at Rs 45-50 lakh crore).

The current inflow of money from investors (Rs 3 lakh crore/year) might not be enough in the long run (15 years) if foreign investors stop putting money in (net-zero FII flows).

To keep things attractive for investors, companies need to issue more new shares (fresh equity issuances) to increase the publicly available pool of shares.

There's also a need to get more companies involved in the stock market, especially from rural areas, as they contribute significantly to the economy but remain untapped.

"India's existing corporate landscape has less than 5000 active listed companies out of pool of more than 16 lakh registered corporates. Moreover, corporate profit to GDP ratio of NIFTY-50 companies comes to only 4.5%. Rural and Semi-Urban areas have an untapped potential, where unlisted companies significantly contribute to India's GDP and employment. These data points suggest that India Inc. would need to broad-base the capital formation coverage and reach out to rural enterprises," said the report. 

As per Lunawat, India would be in dire need of Rs 2.5 lakh crore of equity capitalisation each year. "Capital Markets will be an enabler in achieving such large investment targets. This current market condition has created an enormous opportunity for inclusive growth and capital availability to a broader spectrum of enterprises and ecosystems. Along with the continuing strong regulatory framework, we should improve the depth and breadth of capital markets to provides the desired opportunity for both users and providers of capital.”

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First Published: Apr 03 2024 | 10:48 AM IST

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