India’s Capital Markets Set for New Era of Unprecedented Growth
Explore the driving forces behind the transformative growth in India's capital markets, from increased retail participation to innovative financial products.
As India steps into its next growth phase, the capital markets are primed for a transformation that promises not only to scale but to evolve in complexity. The Financial Industry of India Chambers of Commerce (FICCI) recently shed light on the key drivers orchestrating this revolutionary phase. According to The Economic Times, the expansion is being fueled by substantial retail participation, innovative investment products, and regulatory advancements.
The Rise in Retail Participation
India’s journey over the past three decades reveals stock markets emerging as vital liquidity hubs globally, with a market capitalization exceeding $5.1 trillion by 2024. Astoundingly, the number of demat accounts has ballooned from 40 million in 2019 to a whopping 150 million in mid-2024. Fueling this surge are Systematic Investment Plans (SIPs) and a flourishing mutual fund industry reaching across small towns, offering ground-level market accessibility like never before.
ETFs and Index Funds: The Passive Revolution
Despite a robust rise in ETF (Exchange Traded Funds) assets under management, penetration remains below international standards. Yet, these low-cost, passive investment vehicles present deep participation opportunities and market access diversification, extending beyond equities into realms like commodities, ensuring stability against market fluctuations.
Expanding Horizons with REITs and InvITs
Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are making monumental strides, with assets under management doubling to nearly $100 billion by FY2025. However, their current coverage reveals a fertile ground for growth when compared to market saturation levels in the US and UK. Enhancing policy support can transform these entities into indispensable models for infrastructure and real estate financial sourcing.
Embracing the Fintech Frontier: Stablecoins
While the US has propelled stablecoins into legitimacy through the GENIUS Act, India’s fintech framework, fortified by its digital public infrastructure, could foster a regulated and potent stablecoin industry. This could safely nest stablecoins within the mainstream financial fabric, alongside the Digital Rupee initiative.
Unified Regulatory Collaboration: A Necessity
India’s financial regulatory landscape, currently led by the Financial Stability and Development Council (FSDC), poses an opportunity for unification, incorporating the Ministry of Corporate Affairs (MCA). An inclusive forum would streamline corporate law, banking, and market oversight, facilitating quicker regulatory responses and more cohesive policy implementation.
India is at a crossroad, transforming its capital markets landscape through strategic foresight and robust policy support, paving the way for a vibrant financial ecosystem ready to compete on a global stage.
