Why is India gaining Top Spots in the World’s Largest Stock Market?

5 mins read
by Angel One

With the Indian stock market becoming the world’s 6th largest stock market in terms of market capitalization, the year 2021 has been a year of surprises. India has been gaining top spots in the world’s stock market, overtaking big economies like France. India’s market cap reached $3.4055 trillion leaving behind the French stock market with a market cap of $3.4023 trillion. Since the beginning of this year, the Indian stock market has added $873.4 billion to its market capitalization. According to reports, the Indian stock markets have gained 159% since March 2020, indicating a bullish trend among both Indian and foreign investors.

Currently, the U.S. stock market holds the highest value with $51.3 trillion market capitalization followed by China ($12.42) trillion, Japan ($7.43) trillion, Hong Kong ($6.52) trillion, and the UK ($3.68) trillion. As per Goldman Sachs, the Indian stock markets will likely overtake the UK stock exchange to become the world’s 5th largest stock exchange by 2024.

Why is India Gaining Top Spots in World Stock Markets?

The surge came despite the economic disruptions caused by the covid-19 pandemic, which raises the need to understand the reasons behind this surge. Let us look at the factors that have contributed to the unprecedented growth of the Indian stock markets.

A Move Towards Digital Economy

India, having the second-highest internet users, i.e., more than 800 million, has seen a constant rise in the number of businesses moving online. The global pandemic and the availability of cheap mobile data have encouraged small business owners to take their businesses online. From grocery to payments to education, everything is now available online. The move towards the digital economy has helped many Indian startups reach the valuation mark of $1 billion in the past few years.

The stock market, which used to be dominated by sectors like energy, aviation, and IT, is now witnessing representation from internet-based startups like Zomato, that use modern technologies. The rise in the new economy has led to bullish sentiments among investors regarding the future of Indian stock markets. According to the reports of Goldman Sachs, there are around 40 startups on the road to becoming unicorns and might soon reach the $1 billion mark.

The New Wave of IPOs

Zomato’s IPO in 2021 and its exemplary performance paved the way for other internet-based startups and retail startups to participate in the stock market. The IPO received a Rs 3.5 lakh crore subscription against shares worth Rs.9375 crores. The investor optimism towards Zomato’s IPO encouraged heavy investments in other IPO’s like Tatva Chintan and GR Infraprojects. The Zomato IPO also gave rise to new and young investors leading to a significant rise in the number of Demat accounts opened. It opened doors for other big Indian startups like PayTM, Ola cabs, Oyo Corp, and Policy Bazaar to apply for getting listed on the stock market. The coming years are likely to witness a surge in internet-based startups and new investors who are tech-savvy and have higher risk tolerance.

Improvement in Key Economic Indicators

The key economic indicators such as the Index of industrial production (IIP), inflation, and others have shown a rise in the year 2021, indicating that the economy is in the mode of recovery. The government has also injected huge amounts into the economy to help it recover from the covid-19 induced financial losses.

The better than expected economic recovery has led to a positive investor outlook and drawn more foreign investors into the Indian stock market. The positive future outlook of the Indian economy has led to a sharp increase in foreign investment. Both foreign and domestic investors have collectively purchased shares worth $8 billion in the Indian stock market.

Vaccination Drive

India has carried out the world’s largest vaccination drive and has recently completed administering 100 crore doses. With a rise in the number of people vaccinated and the markets reopening, the future of the Indian economy looks optimistic. The Indian stock markets are expected to continue to grow in the future, leading to more and more foreign investment pouring in.

A rise in the number of Domestic Startups

The government’s policy of encouraging entrepreneurship and the Make in India campaign has resulted in a massive increase in the number of domestic startups. More and more people are now choosing to become entrepreneurs and bringing in innovative ideas. The predominantly job-focused Indian economy is making a shift towards entrepreneurship. Many startups have already hit the $1 billion mark, and many others are on their way to becoming Unicorn startups.

A surge in Consumer Demand

The relaxation in covid-19 restrictions and reopening of markets has led to a significant rise in consumer demand. People are now more excited to travel and go out to spend quality time with their loved ones resulting in a sudden surge in demand for various products and services. With the festive season kicking in, the demand is expected to rise further in the coming months. All this has led to positive market sentiments and an increase in share prices of old and new stocks. The GST collection for the year has also shown a significant rise indicating a steady economic recovery.

New Investors

The rush of IPO’s has encouraged many new investors to enter the stock markets. These new investors have a higher risk tolerance as opposed to the old investors, who are risk-averse and have a conservative approach. The inflow of these new tech-savvy investors indicates a paradigm shift in the stock market demographics.

Future Outlook for the Indian Stock Markets

With more and more digital IPOs flooding the markets, the market cap is expected to expand further in the coming years. As per a report of Goldman Sachs, over 150 private firms might list themselves on the Indian stock market, which could add $400 billion to the market cap by 2024.