India expected to become 3rd largest economy by 2027, market cap to hit $10 trillion by 2030, Pantomath Report

• Equity raise through IPOs in FY25 could exceed ₹1 lakh crores
• India would be in dire need of ₹ 2.5 lac crores of equity capitalization each year. Capital Markets will be an enabler in achieving such large investment targets
• India emerged as one of the fastest-growing economies, surpassing even China, with an impressive GDP growth rate of 7.3%
• The ruling government expected to retain power benefiting the economy’s objective to achieve a $5 trillion GDP
• The Reserve Bank of India (RBI) might consider rate cuts in the second half of FY2025, contingent on overall inflation and the monetary policy stances of global central bankers
• The growth momentum of FY2024 will continue in FY2025 as the RBI’s growth projection for FY2025 is at 7%

Home-grown financial conglomerate, Pantomath Group’s latest report ‘Recap 2024. Crystal Gaze 2025’ revealed that India’s market cap is currently the 5th largest globally ($4.5 trillion). The US ($44.7 trillion), China ($9.8 trillion), Japan ($6 trillion) and Hong Kong ($4.8 trillion) are at present ahead of India in the market cap race. India is expected to become 3rd largest economy by 2027, and the market cap will hit $10 trillion by 2030.

Indian Economy in FY24

In FY2024, the Indian equity market witnessed a phenomenal performance as benchmark indices soared to unprecedented all-time highs, with the Nifty and Sensex scaling milestones of 22,526.60 and 74,245.17 mark respectively.

Indian equity emerged as one of the best-performing markets in the last four years. Indian Market ended time-wise correction in March 2023 last year and then started to rally & continued its strong momentum till now. On the other hand, broader indices outperformed; the NSE Midcap 100 and NSE Smallcap 250 advanced around 60.06% and 63.07%, respectively, in FY2024 till now. India’s market cap reached $4.5 Trillion as of February 2024.

The Indian corporate earnings began to show improvement, with companies benefiting from a softening in commodity prices, leading to enhanced profitability and margins. Companies are expected to continue strong performance in the upcoming quarters, driven by a robust domestic demand environment, positive macroeconomic factors and private capex revival. It’s a positive trigger for Indian equity markets. The year we witnessed robust Industrial Production (IIP) growth and favorable PMI data, indicating an expansion in output at an above-trend pace.

The manufacturing sector sustained its growth momentum, driven by a consistent inflow of new orders. Many companies experienced a notable uptick in sales during the festival season. While the Consumer Price Index (CPI) started to moderate from its peak levels, it remained above the Reserve Bank of India’s comfort range of 2% to 4%. Concerns about inflation persist, particularly in relation to the risk of an increase in food inflation, according to the RBI. The government aims to proactively address supply issues to prevent sharp spikes in food and vegetable prices.

Mr. Devang Shah, Head Retail Research, Asit C Mehta Investment Interrmediates Limited (ACMIIL), said, “India’s economy outperformed expectations in the third quarter of the financial year 2024, with growth rates surpassing both the Reserve Bank of India (RBI) and market predictions, primarily fuelled by significant gains in the manufacturing and construction sectors.

GDP growth for Q3FY2024 is around 8.4% v/s expectation of 6.6%. This led to an upward revision of the full-year GDP growth forecast to 7.6% from an earlier estimate of 7.3% for FY2024, showcasing the economy’s resilience and potential for higher growth. Rising demand and easing input cost pressure should also boost corporate margins in the coming quarters. RBI guided GDP growth of around 7% for FY2025.”

Mr. Shah added, “We continue to be bullish on some of the sectors like Auto and Auto Ancillary, Cements, Defence, Railways, Consumer Durables, Energy, Logistics, FMCG, Capital Goods and Engineering, Infrastructure, Construction, Banking, and Financials, etc., which are going to be outperformers in the rally ahead. Some of the laggard sectors also have some value buying opportunities to accumulate at lower levels, including Information Technology, Specialty Chemicals and Metals, etc.”

Lok Sabha Election in 2024 and RBI Interest Rate Cut

Moving ahead in FY2025, the focus will be on the Loksabha elections, with a hope of continuation of economic reforms and policies as the ruling government is expected to retain power. This outcome instils confidence in both domestic and global investors, encouraging long-term investments in the Indian equity markets, given the anticipated continuity of policies and reforms. Ruling government retaining the power would also benefit the Indian economy’s objective to achieve a $5 trillion GDP soon.

RBI might consider rate cuts in the second half of FY2025, contingent on overall inflation and the monetary policy stances of global central bankers.

Ms Deena Mehta, Managing Director, Asit C Mehta Investment Interrmediates Limited (ACMIIL), said, “This year, India shone brighter than ever before! We stood tall on the world stage, confidently leading the charge in vital areas like poverty elimination, environment protection, promoting peace, driving innovation, and ensuring security. Our government’s relentless efforts paved the way for India’s resurgence across economic, international, judicial, political, and social spheres. With renewed vigor and determination, we are now poised to soar to even greater heights, especially in fueling economic growth and prosperity for all. As a result, India does seem poised for a takeoff on many fronts especially on the economic front. With all these factors we predict that India will surely become the third-largest economy by 2027.”

Ms Deena Mehta added, “The resurgence of private capital, substantial job creation, significant reductions in subsidy leakages, judicial reforms, and unprecedented infrastructure development will lead to a market opportunity of unprecedented scale in recent human memory. These factors are certain to propel the Indian economy into a new era, driven by both domestic consumption and export-led growth. Already, the economy is experiencing remarkable demand expansion across various sectors, fostering cost efficiencies and innovation.”

The public capex push by the government is ultimately now achieving its aim of beginning the private capex revival of Indian companies. These factors also indicate a conducive environment for medium- to long-term GDP growth in the country. India is set to become the third-largest economy by 2027, and the paramount test for the country would be to become the next global manufacturing hub. The country’s robust economic trajectory is underpinned by resilient growth and favorable demographics.

Mahavir Lunawat, Managing Director, Pantomath Capital Advisors Private Limited, said, “The formalisation of the economy is rapidly gaining momentum, generating substantial wealth for all. This, combined with the redirection of household savings into productive financial instruments, is fuelling an unprecedented demand for investment and risk management products. Furthermore, the prospect of a stable government at the centre promises policy continuity.”

Mr. Lunawat added, “Government push for core sectors and sustainability of new age models propels the economy onto a new trajectory, attracting global capital seeking lower risks and higher returns. The Indian Rupee is poised to gain increasing global acceptance amidst these developments. Our world-class payment systems, robust digital currency infrastructure, infrastructural growth, inclusivity, transparent information dissemination, and stringent law enforcement are collectively reinforcing the strength of our economy and society. Before the decade concludes, India is poised to emerge as one of the most credible, reliable, cost-effective, and efficient global trade partners across all spheres of society.”

Indian IPO Market – FY24

The Indian IPO market has been on an upward trajectory, witnessing remarkable growth and emerging as a global hotspot for companies seeking to raise capital. In the fiscal year 2023-24 (FY24), a staggering 76 companies tapped into the public markets through mainboard IPOs, raising nearly ₹62,000 crore – a 19% increase compared to the previous fiscal year.

The average first-day gains stood at 28%. Meanwhile, over 70% or 55 stocks, are still trading above their issue price. The gains can be attributed to several factors. The buoyant secondary markets, the enthusiastic participation of retail investors in IPOs, and the strong flows from institutional investors played a significant role in these gains.

In FY24, the Nifty 50 ended the session with a 29% gain, and the Nifty Smallcap 100 and the Nifty Midcap 100 index gained 70% and 60%, respectively. Mutual funds bought shares worth ~1.9 trillion while foreign portfolio investors were net buyers worth ~2 trillion. The S&P BSE IPO Index, a gauge tracking the after-listing performance of newly listed companies, rose 69% this financial year. The rally in the small and midcap segments has also benefited newly listed stocks because most belong to this basket. The overall public equity fundraising, including from FPOs, OFS, and other avenues, increased by 142% to ₹ 1.86 lakh crore in FY24 from ₹ 76,911 crore in FY23.

Companies from multiple sectors were able to tap the IPO market in FY24. However the traditionally dominant financial sector, demonstrated restrained activity, raising Rs 9,655 crore, which accounted for less than a fifth of the total capital raised. New-age technology companies were also few, with just three IPOs of Yatra, Mamaearth and Zaggle hitting the market. The response of retail investors was also higher compared to the previous financial year. The average number of retail applications rose to 1.3 million from about 0.6 million in the previous financial year. The response was due to strong post-listing performance. The average listing gains rose to 29 % in FY24 against 9 % in the previous financial year

Indian IPO Market – FY25

The IPO market is buzzing with anticipation as a multitude of innovative and captivating offerings are poised to hit the market, buoyed by India’s robust economic growth. With FY2025 on the horizon, expectations are high for yet another stellar year for IPOs. This optimism is fuelled by a confluence of factors, including the surge in domestic capital, enhanced governance practices, the vibrant spirit of Indian entrepreneurship, and favourable government policies bolstered by FDI support. Moreover, the landscape is enriched by the rising tide of financial literacy and the unwavering commitment of institutional investors.

In the above backdrop, IPO activity will be resurgent, driven by a combination of factors. Companies that had previously deferred their IPO plans are now poised to make their debut, capitalizing on favorable market conditions. Anticipating a surge in demand and backed by robust market practices, both domestic and foreign investors are showing keen interest in primary markets, setting the stage for a flurry of new listings.

Ms Madhu Lunawat, Executive Director & CIO, India Inflection Opportunity Fund, said, “As is the thrust of our Hon. Prime Minister, corporates must adopt the highest standards of corporate governance, with transparency and accountability as the cornerstones of corporate culture. Moving away from tax-planned balance sheets, corporates must consolidate businesses and work towards achieving scale, backed by research and innovation. Capitalise and Scale ! Businesses must prepare themselves to raise growth capital pro-actively and emerge on the global centre-stage, as we enter the Amritkal of new Bharat.”

The momentum is palpable, with a multitude of companies preparing to enter the IPO arena. A total of 56 companies have filed their documents with SEBI targeting to raise ₹ 70000 crores.

Currently, 19 companies have secured SEBI approval to raise an impressive ₹25,000 crores, while additional 37 companies, eyeing a substantial ₹45,000 crore, and eagerly await regulatory clearance. Notably, among these 56 prospective IPO candidates, 9 are the new-age tech firms, collectively seeking to raise around ₹21,000 crore.

Mr Mahavir Lunawat said, “With a diverse array of offerings and a fervent appetite for growth capital, the IPO landscape in FY2025 promises to be dynamic and vibrant, offering exciting opportunities for investors and companies alike. We anticipate that equity-raise through IPOs in FY25 could exceed ₹1 lakh crores. This figure could potentially increase even further if there are no global shocks affecting the Indian market.”

India Is Poised To be the Engine of Growth in the Next 10 Years

Mr Prasanna Pathak, Managing Partner, India Inflection Opportunity Fund, stated “India’s strong macroeconomic fundamentals, marked by robust GDP growth, moderating inflation, stable rupee coupled with government spending and capex played a crucial role in making India one of the attractive investment destination in the last 1-2 years. FY25 is expected to be a year of consolidation after the run-up that we have seen over the last 1-2 years.”

India is poised to be the engine of growth in the next 10 years. India has emerged as one of the fastest-growing economy, surpassing even China, with an impressive GDP growth rate of 7.3%. The Gross Fixed capital formation is an important parameter that decides the fate of GDP especially for growing and developing economies like India. The Gross Fixed capital formation was around 30% of GDP in 2023. To double the country’s GDP by 2030 without excessive leverage, India would need additional equity capitalisation of ₹ 2.5 lakh crores every year for the next 7 years. Secondly, the similar size of equity capitalisation is also desired from an investor perspective, considering the anticipated domestic inflow to the capital market. Looking from the investor’s perspective, ensuring the vibrancy of our capital market is crucial, given our high promoter holdings and anticipated inflows.

The current Market Capitalization of India is approx. ₹ 310 Lakh Crores. Promoter ownership in India is one of the highest at ~50% vs ~20-25% average for most other larger markets. Thus, the free-float for Indian markets is one of the lowest. Also, as per the latest ownership data in the Indian market, 16-18% is owned by Foreign Institutional Investors (FII’s) and around 20% by Domestic Investors (DII’s). Thus, the actual public float is just 12-15%. This translates into a public float of just Rs.45-50 lakh crores. The current domestic inflows from Mutual Funds, Insurance, Pension, PMS, AIF are to the tune of ~Rs. 3 lakh crores per year. These appear to be structural in nature at-least for the next 5-10 years.

Assuming net-zero FII flows, the public float may last for only ~ 15 years. Therefore, there is need for matching fresh equity issuances every year to maintain a balance and keep our marketplace an attractive destination for investors.

New Capital required to maintain the float Indian Market Cap ₹ 340 lakh crores Available Public Float (15%) ~ ₹ 50 lakh crores Total Domestic Inflow per year in Equity ~ ₹ 2.5 lakh crores* India Is Poised To be the Engine of Growth in the Next 10 Years Third dimension is the need to broad-base and capitalise wider canvass of business enterprises. India’s existing corporate landscape has less than 5000 active listed companies out of pool of more than 16 lakh registered corporates. Moreover, corporate profit to GDP ratio of NIFTY-50 companies comes to only 4.5%. Rural and Semi-Urban areas have an untapped potential, where unlisted companies significantly contribute to India’s GDP and employment. These data points suggest that India Inc. would need to broad-base the capital formation coverage and reach out to rural enterprises.

Mr. Mahavir Lunawat said, “As per our analysis, whether from the perspective of demand or from investible funds perspective or from inclusivity point of view, India would be in dire need of ₹ 2.5 lac crores of equity capitalisation each year. Capital Markets will be an enabler in achieving such large investment targets. This current market condition has created an enormous opportunity for inclusive growth and capital availability to a broader spectrum of enterprises and ecosystems. Along with the continuing strong regulatory framework, we should improve the depth and breadth of capital markets to provides the desired opportunity for both users and providers of capital.”