India @75: India’s markets- Looking back & looking ahead

The mutual fund industry offered innovative schemes, designed to meet client goals of growth, capital protection and portfolio diversification. High efficiency also led to lower transaction and intermediary costs.

India @75: India’s markets- Looking back & looking ahead
Rashesh Shah

By Rashesh Shah

Remember to celebrate milestones as you prepare for the road ahead – Nelson Mandela.

in 2022, the Indian equity market for the first time ranked amongst the top five globally, climbing two positions from the start of the year despite weak global performance. India stands strong at 75 and as we enter our Amrit Kaal, we look back at the past 75 years and celebrate the foundations which would enable us to propel towards 100! The beginnings of this tremendous journey were humble in origins. In August 1957, the Bombay Stock Exchange (BSE) became the first stock exchange to be recognised by the government under the Securities Contracts Regulation Act. Sensex’s journey from 100 in 1987 to 59,000 was a trifecta of democratisation, diversification, and innovation culminating into mass retail participation.

Democratisation
The evolution of the Indian capital markets mimics the India growth story. Post-Independence, capital markets were in their nascent phases. Private sector was yet to develop, and regulations were stringent. The 80s saw a boom with increased private sector listings, and post the reform era of the 90s, momentum grew. One significant event was the creation of the National Stock Exchange (NSE) which paved the way for democratisation of capital markets and expanded the trading horizons. The 90s also saw a shift to electronic trading and setting up of depositories, coinciding with the entry of information technology companies on the exchange itself. The 2000s brought the expansion to internet-based trading and the advent of derivatives.

Also Read| India @75: A long, arduous road ahead

Diversification
During the post-Independence period, the economy was agrarian with a push towards industry and manufacturing; the stock exchange composition was also similar. From being dominated by materials and industry, it evolved to a more balanced cross sectoral representation with sectors like finance and information/communication in the late 90s. With the growing sectoral diversity, we also saw a growth in the product and asset class diversity. Indian capital markets were driven by equity, with other segments being relatively underdeveloped (even today!). However, as the markets and its participants evolved, the product offering also evolved. The early 2000s saw introduction of derivatives, followed by mutual funds, commodities and inclusion of SME trading in 2009. Around 2013 we saw currency derivatives and a SEBI nod for debt trading.

Innovation
The innovation era brought widespread changes in market processes, products, participants as well as platforms. These changes were aimed at increasing market efficiency, providing more options to a wider spectrum of investors, and creating platforms which integrate into a seamless unified user experience even for novice investors. Innovation was also at play in improving access. With low data prices and wide internet availability, newer channels were fuelling reach. Major impetus to digital India came on the back of the India stack and its seamless interoperability.

Real estate and gold, typically seen as physical assets, were digitised with the introduction of digital gold, bonds and ETFs. InVITs and REITs provided exchange listed exposure into physical assets. The mutual fund industry offered innovative schemes, designed to meet client goals of growth, capital protection and portfolio diversification. High efficiency also led to lower transaction and intermediary costs.

Savers to investors – a trifecta amplified by low costs!

More options, lower costs and increased flexibility added with the digital push post the pandemic, brought an influx of retail participation. Individual investors in equity cash segment were at 44.7% in FY21, a 16% YoY increase compared to a 4-year CAGR of just 2% in earlier years. Mutual funds experienced a similar phenomenon, with a 11% YoY increase in the value of assets held by individual investors vs a 5% YoY growth in institutional assets as on June 22. The participation was not just limited to the urban hotspots, we saw 10% YoY increase in B30 participation which as on June 22, contributed 17% of all MF assets and 26% of individual assets with 75% being in equity-oriented schemes. Contrast this to 56% of T30 participation in non-equity schemes; indicating movement towards other assets classes in the more matured markets.

Increasing retail participation also brings about a structural change, helping mitigate the risk of FPI outflows, while adding to market stability.

Years to come – Amrit Kaal

With the Indian micro economic environment taking a conducive turn, the requirement of capital will increase and the role of the markets, especially debt segment will evolve further. India is yet to see a mass offtake of the bonds markets. A few crucial reforms, if implemented in a timely manner, can take India on an accelerated trajectory towards achieving the vision of a vibrant bond market that ensures that funds flow towards productive investments and market forces exert competitive pressures on lending to the private sector.

India has all the ingredients required to become a global financial hub of the future. What is required is to create an enabling and conducive economic environment that can utilize India’s core strengths to create a distinctive competitive advantage.

The author is Chairman& CEO, Edelweiss Group

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