 "BSE, STOCK MARKETS")
India’s equities have been a remarkable success story over the past four decades, reflecting the nation’s economic progress.
The equity market has delivered exceptional returns, outpacing global peers. Meanwhile, India’s regulatory framework and infrastructure have evolved into some of the world’s most efficient.
Since 1979, the base year for the Sensex, India’s 30-share benchmark index has surged nearly 700 times, achieving a compounded annual growth rate (CAGR) of 15 per cent in local currency. For context, the S&P 500 grew about 50 times, Japan’s market 6.4 times, Malaysia’s 9.5 times, and Germany’s 33 times over the same period.
“In the last 20 years, India and the US have been the only large equity markets to give double-digit compounding,” says Saurabh Mukherjea, chief investment officer at Marcellus Investment Managers. He says this highlights the importance of competition and contestability, both in the economy and politics. “Although a highly contested democracy may appear unsettling to investors who prefer efficient dictatorships, the consistent question is: ‘where are the returns?,”. The Chinese stock market has compounded at less than half the rate of India’s market in the last 20 or 30 years, he says.
The journey hasn’t been without turbulence. The market weathered crises like the 1970s oil shock, the 1990 Gulf War, the 1992 Harshad Mehta scam, the Asian financial crisis, the Covid-19 pandemic and the latest US tariff uncertainty. Most of these events triggered significant downturns in both global and domestic markets. Yet, on almost every occasion, the Indian markets have bounced back stronger.
Raamdeo Agrawal, chairman and cofounder of Motilal Oswal Financial Services, likens the Indian stock market to a resilient bull: “Whenever you try to suppress it, it only grows stronger.”
The Indian market's growth aligns closely with the economy’s nominal GDP trajectory. This upward momentum is driven by sustained economic expansion, favourable demographics, progressive government reforms, substantial domestic savings, a shift toward high-growth sectors, and a robust regulatory framework. These dynamics are poised to fuel both the economy and markets for decades to come.
Over the next decade, India’s economy is projected to grow at over 7 per cent annually, providing a strong foundation for continued stock market growth.
India's population dynamics bolster this optimism. In 2023, India surpassed China to become the world’s most populous country. With a median age of 27.6 and a youth population of 254 million (aged between 15 and 24), India is a young country.
“The Indian economy will be even more competitive,” says Mukherjea. “Beneath the top 600 companies, 6,000 more challengers are emerging — companies with profits between $6-60 million, growing at a rapid rate of 25-30 per cent.” They benefit from India’s expanding digital and physical infrastructure, he adds. “Over the next 10 years, competition will surge, likely leading to more churn in the Sensex.”
Currently, India’s market capitalisation is around $5.4 trillion, making it the fifth-largest stock market in the world, behind the US, China, Japan and Hong Kong. In the coming years, India’s economy and its market are poised to surpass $10 trillion: a club currently occupied only by the US.
Any discussion of India's stock market would be incomplete without recognising the strides made in regulatory infrastructure, which have not only encouraged new investments but also saved millions of dollars in trading costs.
“Since 2015, India has undergone transformative changes. The introduction of flexible inflation targeting by the RBI, mandated by law, has reduced inflation and interest rate volatility, making economic growth more predictable and lowering equity risk premiums. Additionally, allowing pension funds to invest in stocks has unleashed a wave of household investment, similar to the US 401(K) boom post-1980. With only 7-8 per cent of household balance sheets currently in stocks — compared to 20-50 per cent in developed markets — this could triple, creating a 30-40-year secular trend. Regulatory reforms by Sebi, electronic trading, and investor education have restored confidence, ensuring no major scams since 2001. This robust framework supports sustained market growth, though a major crash could pose risks,” says Ridham Desai, managing director and chief India equity strategist, Morgan Stanley India.
