Economic Survey credits retail investor surge for growth in India’s capital markets | Stock Market News

India’s stock markets overcame challenges such as geopolitical tensions, currency fluctuations, and domestic market volatility to reach new heights in FY25, driven by an increasing number of investors, active listing activities, and regulatory support, according to the Economic Survey 2024-25.

The capital markets are central to India’s growth story, catalysing capital formation for the real economy, enhancing the financialisation of domestic savings, and enabling wealth creation, the Survey noted. Over a longer period, India’s stock market has been one of the top performers globally, with a compounded annual return of 8.8% over the past 10 years, according to the survey.

The number of retail investors in India surged to 132 million as of December, up from 49 million in FY20, reflecting a growing trust in the capital markets.

“This growth, combined with active listing activity and recent measures by the Securities and Exchange Board of India (Sebi) to temper excesses, is expected to foster sustainable market expansion,” the Economic Survey stated.

There was heightened activity in the primary markets in FY25, with India becoming the global leader in IPO listings.

“India’s share in global IPO listings surged to 30% in 2024, up from 17% in 2023, making it the leading contributor of primary resource mobilisation globally,” the report noted.

From April to December 2024, total resource mobilisation from the equity and debt markets reached ₹11.1 trillion, which is 5% more than the amount mobilised during all of FY24.

IPO sizes

The increase in IPO numbers, which jumped by 32.1% from 196 to 259 in the first nine months of FY25, reflects the buoyant market conditions.

“The mainboard platform witnessed a significant increase in issue size as the average IPO deal size rose to ₹2,124 crore, up from ₹814 crore in entire FY24. In the case of small and medium enterprises (SMEs) IPOs, the average deal size increased to ₹39 crore from ₹31 crore during the same period,” according to the report.

In addition to the equity markets, the corporate debt market gained traction. From April to December 2024, ₹7.3 lakh crore was raised through corporate bonds, with private placements accounting for 99.1% of the total debt issuance.

However, the report pointed out that India’s corporate bond market remains undercapitalised.

“As a percentage of GDP, the corporate bond market is only 18% in India, as opposed to 80% in Korea and 36% in China,” the survey said.

Liquidity in the debt market could improve if certain challenges are addressed, it said.

“If liquidity has to enter corporate bond markets, problems such as entry costs, information asymmetry, and the absence of a secondary market must be addressed,” the report suggested.

The secondary markets exhibited positive performance, with the Nifty 50 index returning 4.6% from April to December 2024, despite significant volatility due to global events such as the US elections and escalating international conflicts.

The surge in investor participation has been particularly noteworthy. As of December 2024, the number of demat accounts reached 185 million, a 33% increase year-on-year.

“Higher investor participation has engendered a self-reinforcing cycle of strong market returns, bringing in even more investors. This, in turn, will eventually transform the securities market into a more diverse, inclusive, and robust platform for wealth creation,” the report observed.

Moreover, there was a massive uptick in retail participation in the mutual fund sector, with assets under management (AuM) increasing by 25.3% from March 2024 to ₹66.9 trillion.

The report highlighted the growth in systematic investment plan (SIP) inflows.

“Monthly average gross SIP flows have more than doubled in the last three years, from ₹0.10 lakh crore (trillion) in FY22 to ₹0.23 lakh crore in FY25,” it stated.

The positive performance of the Indian stock was driven by strong profitability growth, rapid traction of digital financial infrastructure, an expanding investor base and substantial reforms in products and processes.

Healthy corporate earnings, stable macro fundamentals, efficient and robust technology architecture facilitating efficient trading, clearing, and depository systems, and trust garnered by the mutual fund ecosystem and online digital investment platforms have encouraged greater participation in the capital markets.