106th Annual Conference of Indian Economic Association

NSE- IEA Lecture Series on Financial Economics

India @75 to Bharat @100

– A Roadmap for Indian Stock Market

Lecture by:

Dr. Prabhas K. Rath, CGM, SEBI

Dec 28, 2023, Bhubaneswar
 Demystifying Stock Market

• A place of Speculation
• Second order ‘Average Opinion’
• Zero-sum Game
• Tobin’s Q – Organic vs. Inorganic
• Hick’s Ceiling – Real Sector vs. Financial Sector
• Wealth → Capital → Prowess

2
 Wealth Creation

Movement of Nifty 50 and Nifty 500 Investment Returns

1600
1400
CAGR (%) Nifty 50 Nifty 500
1200
Apr 2000-Dec 2023 12.3 12.4
1000
800 Apr 2000-Mar 2010 13.1 12.5
600 Apr 2010-Mar 2019 9.2 9.4
400
Apr 2020-Dec 2023* 27.4 30.4
200
0 Apr 2021-Dec 2023* 14.3 16.9
*till Dec 20, 2023
2000
2000
2001
2002
2002
2003
2004
2004
2005
2006
2006
2007
2008
2009
2009
2010
2011
2011
2012
2013
2013
2014
2015
2015
2016
2017
2017
2018
2019
2019
2020
2021
2021
2022
2023
Nifty 50 Nifty 500

3
 Capital Formation

Fund Raising From Market Outstanding Fund Raising : Bond vs. Bank Credit

(₹ Crore) ( ₹ lakh crore)

14,00,000 1

12,00,000 1
43
10,00,000 1 40
36
8,00,000 33
1 31
6,00,000 27
24
0 20
18
4,00,000 15
13
0 11
2,00,000 9 62
69
52 56 57
45 47
0 0
34 39 41 43
25 30

2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23

Debt Equity Reits & InvITs AIFs funds raised Outstanding Bank credit (to Industries and Services) Outstanding Corporate bonds

4
 Economic Prowess – 5th Largest with reasonable valuations

Market Size
Price Earnings Ratio
40 70,000

12-Month Trailing P/E

65,000
Milestones Month MCap to GDP 35 60,000

Sensex- Closing Price

30 55,000
50,000

Ratio
25 45,000
$1 Trillion May 2007 95% 40,000
20 35,000
30,000
$2 Trillion July 2017 84% 15
25,000
10 20,000

Apr-16

Apr-17

Apr-18

Apr-19

Apr-20

Apr-21

Apr-22

Apr-23
Oct-16

Oct-17

Oct-18

Oct-19

Oct-20

Oct-21

Oct-22

Oct-23
$3 Trillion May 2021 110%

$4 Trillion Nov 2023 123% PE Ratio Sensex

Source: BSE, MOSPI

5
 Economic Prowess

Weights of India and China in MSCI EM Index

6
 FPI Interest High, Still Domestic Ownership Inching up
Shareholding in NSE's Free Float MCap
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Jan-18

Jan-19

Jan-20

Jan-21

Jan-22

Jan-23
Mar-17

Jul-17
Sep-17

Mar-18

Jul-18

Mar-19

Jul-19
Sep-19

Mar-20

Jul-20

Mar-21

Jul-21
Sep-21

Mar-22

Jul-22
Sep-22

Mar-23

Jul-23
Sep-23
Sep-18

Sep-20
Nov-17

Nov-18

Nov-19

Nov-20

Nov-21

Nov-22
May-17

May-18

May-19

May-20

May-21

May-22

May-23
Mutual Funds FIIs Banks, FIs & Insurance Corporate Individual Others

• Holdings of Individuals + MFs has increased from 29% to 38% of free float
• Holdings of FPIs has declined from 41% to 37% of free float

7
 In Rs. Crore

-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000

Apr-21
May-21
Jun-21
Jul-21
Aug-21
Sep-21
Oct-21
Nov-21
Dec-21
Jan-22
Feb-22
Mar-22
Gross SIP Inflows Apr-22
May-22
Jun-22
Jul-22
Aug-22
Sep-22
Oct-22
Nov-22
Dec-22
Net SIP Inflows

Jan-23
Feb-23
Mar-23
Apr-23
May-23
Jun-23
Domestic Investors with Longer Commitments

Jul-23
Aug-23
Sep-23
Oct-23
16,767

8,609

8
 Domestic Investors Countervailing FPIs

• Share of FPIs in total turnover has declined due to increased participation by domestic investors
9
 Headwinds

• Excess Money; Slowing China; Green Financing

• Consumerism; Anti-globalisation
Headwinds • Inflation

• Total Factor Productivity

• Inflation beating asset class
Lever • Digital Platforms

• Risk Capital for New Age companies, Automation and Innovations

• Efficient Allocation of Resources
Tools • Ease of Doing Business

10
 Indian Stock Market@75 to Bharat@100
Key Indicator Current Projected @ 1947 Benchmarks

Market Cap to GDP 120% 125% USA: 200%, UK: 100%, China: 80%,
(USD 4T) (USD 40T) Japan:125%
#SME Listing ~750 >3,000 UK: 3600 (AIM), ChinNext: 1277
Bond Market to GDP 50% 175% USA: 190%, UK: 129%, China: 120%,
Japan:260%
Outstanding bonds as % 45% 75%
of bank credit USA: 103%; S. Korea: 48%; Malaysia: 35%

MF AUM as a % of GDP 18% 140% USA: 140%, Japan: 48%, China: 18%,
UK:75%
% of population holding 3% 30% USA: 55%, UK: 33%, China: 13%,
shares Japan:30%
% of population holding 3% 40% USA: 46%, Japan: 20%, China: 44%,
mutual funds UK:20%

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 Composition of Equity Market

Share in Market Cap (%) Share in Market Cap (%)

Financial Services

Information Technology 15
14
Oil Gas & Consumable
Fuels
3 30 FMCG
3
Automobile and Auto
3 Large Cap
Components 17
4 Healthcare Mid Cap
5 Capital Goods Small Cap

6 10 Consumer Durables
68

6 Metals and Mining

8
8
Construction

Power

Based on top 750 listed companies accounting for ~97% of market cap #23 of Nifty 50 companies from services sector

12
 Next Steps –Equity

• Mobilisation though MFs from B30 –18% of AUM

• Equity from beyond Tier II Cities – 20%
• Listing of more Manufacturing Companies
• Listing of more SMEs
• Disinvestments of PSUs
• Minimum Public Shareholdings
• Financing of innovative new age companies - AIFs
• Monetisation of Assets - REITs and InVITs

13
 Next Steps - Corporate Bond Market

Issuers Investors

Trust Banks Others#

PSU 0.7%
19.2% 13.0% Foreign Portfolio 6.4%
Investor(Corporate)
Body 1.5%
Corporates
14.3% Bank
36.7%
QIB
14.4%

Financial Mutual
Institutions Fund
0.3%
11.6%

NBFC
31.1%
HFCs Body
21.5% Corporate
29.4%

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 Next Steps - Corporate Bond Market

• Going Down the Yield Curve

– Credit Default Swap
– Liberalized Institutional Investments
– Direct fund raising by real sector
• Infrastructure & Green Bonds – Credit Enhancement- Govt. Support
• Liberalization of Gsec Market – Gsec 97T vs SDB 49T vs. Corp Bond 44T vs. 15T (USD176 B)
• Inclusion in Global Bond Index
• Retaliation of Corporate Bonds - Repo - LPCC, Backstop

15
 Next Steps - Digitalization, Financialisation & Inclusion

Population Social Mobile

Internet Media Connections
Country Med. Age (Year) Penetration User
Total Urban Rural
(%) % of % of
(mn.) (%) (%)
Population Population
Brazil 216 87.7 12.3 33.5 84.3 70.6 102.4
Russia 145 75.3 24.7 39.2 88.2 73.3 156.9
India 1420 36.1 63.9 28.2 48.7 32.9 77.5
China 1403 63.9 36.1 38.8 73.7 72 118.2
South Africa 60 68.6 31.4 27.5 72.3 42.9 187.4
Japan 124 92 8 49 82.9 74.4 149.2
USA 339 83.2 16.8 38 91.8 72.5 113.1
UK 68 84.5 15.5 40 97.8 84.4 129.6

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 Next Steps - Responsible Investing

• Over 500% increase in number of individual traders in equity Trend in Demat A/c
F&O segment between FY19 and FY22.
14 40.0
• Another ~40lakh new individual traders (nearly 90% over 11.4
12 35.0
FY22) added to equity F&O segment in FY23. 29 30.0
10
• 98% of individual traders in the equity F&O segment traded in 8
25.0

Lakh
Crore
21
options during FY 2022. 6
20.0
15.0
• 9 out of 10 such individual traders incurred net losses during 4
5.5 10.0
FY19 as well as FY22. 2 5.0

• Number of demat accounts consistently increasing, however 0 -

the pace of monthly addition of new accounts has moderated -

21 lakh per month in FY23 from 29 lakh per month in FY22.
Total Demat A/c - LHS (in Crore)
Monthly New A/c added - RHS (in Lakh)
Avg. Monthly New A/c added in FY2021-22 - RHS (in Lakh)
Avg. Monthly New A/c added in FY2022-23 - RHS (in Lakh)

17
Most importantly, need to sustain ‘Premium’ being given to India

25

20.2 20.5
20 18.9 19.3
17.1 16.8

15

12.3 12.4
11.5
10.7 10.9
10.3
10 9.4
8.0

0
MSCI India MSCI China MSCI Brazil MSCI Korea MSCI US MSCI EM MSCI World
Long term avg (FY19-FY23) Nov-23

18
THANK YOU

19