India’s market capitalization appears to be approaching US$ 5 tn mark by 2024

The gradual increase of new, tech-savvy investors with a modern approach to investments and higher risk-tolerance suggests the rapid expansion of market cap.

September 23, 2021

Global strategy paper by Goldman Sachs predicts that the US$ 5 trillion mark could be soon achieved based on the boom in IPOs.

Around 150 private firms could list over the next 2-3 years, bringing around US$ 400 billion to market capitalisation.

New change is being attributed to the economic transformation of the rise in the ecommerce market.

Average daily trading turnover in FY 2021-22 increased to US$ 692.18 billion from US$ 339.3 billion in FY20.

India’s market-cap has been predicted to rise to US$ 5 trillion by 2024, according to a recent global strategy paper by Goldman Sachs, basing their projections on the slew of IPOs which are expected to arrive in the domestic market in the near future. After the market capitalization of Indian exchanges exceeded the trillion mark this May, a continued rise in the stocks were witnessed in the following four months, despite the pandemic and its related concerns, the tightening monetary grip of the Damocles sword of US Fed over the market. The Indian market is evolving  on the back of a new wave of savvy investors who are more open to risk taking than their predecessors and the economic transformation related to the e-commerce route which most consumer-facing services and products are taking, thereby allowing technology firms and businesses to grow further. This makes the projections of the report achievable, albeit a little later than what was predicted.

The doubling of most stock prices through 2020, in the background of the online market and working from home gaining prominence has attracted more investors presently, with the willingness to take risks. The proof of this lies in the 45 percent increase in stock prices in FY21 from 39 percent in FY20, the 9.3 percent towards the end of June 2021 from 8.3 percent in the corresponding period the previous year and the tripling of the new demat accounts from 4 lakhs/month  in FY20 to 12 lakhs/month in FY21 to a stupendous 26 lakhs/month in the current financial year. Additionally, the average daily trading turnover in 2021-22 has also been excellent, amounting to US$ 692.18 billion from a previous figure of US$ 339.3 billion in FY20. 

These major changes in retail participation could be attributed to the popularity of the IPO in July-August 2021, which began with the Zomato IPO. The central nature of Indian markets changed with the IPO rush, with Tatva Chintan and GR Infraprojects garnering massive amounts of funds. The boom in demat accounts during the fiscal is proof of the debut of many new investors in stock markets after the Zomato IPO. In sharp contrast to the traditional Indian investor, the new batch of investors have greater willingness in taking a chance with loss-making new economy companies. Consequently, their presence works in favor of the upcoming IPOs of digital companies.

It is this change in the market through digital IPOs and companies that the Goldman Sachs report bases its argument on, of the market cap expansion in the near future. It further adds that around 150 private firms could list over the next 2-3 years, bringing around US$ 400 billion to market capitalisation, and estimates that this would increase to US$ 5 trillion by 2024, making it the fifth largest market in the world. It cites the inclusion of new-economy stocks as the factor that would bring down the share of old-economy sector stocks from 16 percent to 5 percent. The valuation of the Indian market would further expand, taking the market cap towards the US$ 5 trillion mark, since these stocks trade at higher valuation with the potential for faster growth. However, the overlooking of the secondary market conditions  which resulted in the current market IPO rush is also to be noted here, given that its absence would result in the drying out of IPOs. On the other hand, changing consumer behavior as a consequence of the pandemic, along with the structural shift in the type of investors could result in the rapid growth of new economy companies and make them attempt to obtain a stock market listing that could help increase their market share over the years.