Increasing foreign investment in the capital market is telling India’s success story to the world.

The ups and downs in the stock (capital) market for any country reflect the future changes in the economy of that country. If there is a boom in the stock market, it is generally assumed that the economy of that country is improving. On the contrary, if the stock market is seen going down, it means that some problems are going to come in the economy of that country in the near future. There is almost no problem of any kind in India’s economy today, due to which the stock market of India seems to be achieving new heights everyday. On the contrary, almost all the developed countries like America, China, Russia, Japan, Germany, Britain, etc. are facing a lot of economic problems today. Many developed countries still have not been able to handle the problem of inflation. Because of this, the confidence of foreign institutional investors has been restored on the Indian economy and on an average, foreign institutional investors are buying shares worth Rs 100 crore per day in the Indian stock market.

The speed that the Indian stock market has picked up since the year 2014 has never been the same before in the history of the Indian stock market. The Sensex in India stood at 22,343 on 7 April 2014, which crossed the 24,700 mark on 26 May 2014. Sensex reached 38,600 points on 10 April 2019 before the election bugle in the year 2019. In the first term of the Modi government, the stock market jumped by almost 73 percent i.e. more than 16,250 points. In the year 2020, while controlling the Corona epidemic, India wrote a success story on the screen of the whole world. In the year 2020, the Indian stock market provided investors with a return of more than 15 percent as compared to the world markets. At present, the Sensex has crossed 65,000 in India. In the second term of the Modi government, the Sensex has shown a gain of 66 percent i.e. 25,500 points. The market cap of Bombay Stock Exchange was Rs 74.51 lakh crore as on April 7, 2014, which has increased to Rs 294.11 lakh crore at present. Thus, during this period Rs 219.59 lakh crore has come into the pocket of the investors. Sensex has jumped almost 1800 points in last 40 days in India.

Foreign investors have played an important role in the Indian stock market during the year 2014 to 2023. Foreign institutional investors have invested more than US$ 4,900 crore in the Indian stock market. From April 2023 to July 2023, foreign institutional investors have invested US $ 1500-1600 crore in the Indian stock market. Foreign institutional investors who were buying shares of Chinese companies by selling shares of Indian companies in January-February 2023, but now from March-April 2023 they have again started buying shares of Indian companies. Out of the last 9 years, there have been only 2 years in which FIIs net investment in the Indian stock market has been negative.

Why Foreign Institutional Investors are getting so much attracted towards Indian Stock Market today. One, the Indian stock market has provided very high returns to its investors. When we compare this return with the capital market of other countries, it comes to mind that the investment in the stock market of many other countries of the world gives a return of about 8-9 percent, while the return on investment in the Indian stock market is about 15-16 percent. Similarly, investment in bonds in America gives only 2-3 percent or maximum 5 percent return and in India, bank fixed deposit gives about 6 percent return, loan, commercial paper, bonds etc. also gives about 6 to 7.5 percent return. The return on gold investment also remains around 7 to 8 percent and the return on investment in real estate is around 9 to 11 percent. Whereas in the Indian stock market, the Sensex was at 100 points in the year 1980, which has come down to 67,000 points today. Therefore, the stock market has given investors returns in excess of the average annual compound rate of 16 percent per annum. In the long run, only the stock market has generally given a higher rate of growth than inflation.

Secondly, there has been a remarkable improvement in India’s economic growth rate during the last nearly 10 years. In recent years, a lot of work has been done in developing the infrastructure in India and now Indian infrastructure is seen competing with the infrastructure of developed countries. Similar efforts are now being made to develop the manufacturing sector as well. ‘Chip’ manufacturing units for the auto industry are now being set up in India itself, while till now chips were being imported in India. In the field of security also various products were imported but now manufacturing units are being established in India itself and India is becoming self-sufficient in this field. Mobile manufacturing units have been established in India, the Indian auto industry is now moving towards becoming the number one industry in the world. Many big multinational companies of the world are setting up their manufacturing units in India. India’s free trade agreements are being concluded with many countries and foreign trade with some countries is also being done in Indian rupees, due to which the dependence on US dollar is decreasing. Foreign trade in rupees has started with many countries like Russia, Iran, Sri Lanka, Bangladesh etc. The value of rupee is increasing in the international market. This is creating an environment for foreign investment in India. At the same time, the effect of all this is that the Indian economy is now growing at a rate of more than 7 percent per annum and there are immense possibilities for the Indian economy to remain at the same pace for many decades to come. The stock market is the mirror of the country’s economy. The rapid growth of the stock market in India also means that the growth rate of the Indian economy will remain attractive in the future.

The growth rate in the Indian stock market is likely to increase further in the future because even today the penetration of retail investors in the Indian stock market is very less. Only 14 crore demat accounts could be opened in a country with a population of over 140 crore. The number of Demat accounts in India before the Corona period was only around 4 crores and during the Corona period around 7-8 crore new Demat accounts have been opened. However, now the trend of retail investors is fast moving towards the stock market. According to the depository data, retail domestic investors have invested Rs 7 lakh crore in the Indian stock market.

Another important reason due to which the Indian stock market is likely to remain bullish is that the geo-political tension in India is comparatively less, while the mutual relations of other countries cannot be said to be very good. European countries are fighting among themselves, whereas there is a war going on between Russia and Ukraine. China’s relations with its neighboring countries are also not very good. Also, there is political stability in India, the world’s largest democratic system is considered in India only. Indian states are also now seen competing with each other in terms of economic development. Earlier only the state of Gujarat was said to be a fast growing economy. But, now the states of Uttar Pradesh, Madhya Pradesh, Maharashtra, Karnataka, Tamil Nadu, Odisha etc. are also seen moving fast on the path of development. Some of these states have taken steps towards making their economies 100 million US Dollars. If 19th century was of Europe and 20th century was of America, now 21st century is going to be of India.

– Prahlad Sabnani

retired deputy general manager

state Bank of India