India at 75 – Assessing the History, Considering the Opportunities

By InCred August 13, 2022

As India celebrates ‘Azadi ka Amrit Mahotsav’, commemorating 75 years of independence and a glorious history, it is time to take a glance at the evolution of the country’s investment scenario, while also considering the opportunities being offered by the fast-growing economy. From the inception of the stock market, the rise of the domestic mutual funds market, to the altering investment landscape peppered with unicorns, India has travelled a long way in the last 75 years. And the journey is still afoot, in every sense of the term. As is often said, history sets the tone for the future so let us study the past to better define the prospects that lie ahead.

Stock Market Trajectory

Established in 1875, BSE Ltd. (formerly known as Bombay Stock Exchange Ltd.), was Asia’s first Stock Exchange and played a prominent role in developing the Indian capital market. While there are several market indices and sub-indices today, the Sensex, made its debut on April 1, 1979, featuring a base value of 100. Throughout a series of defining events, from the Harshad Mehta scam of 1992 and to the bomb blasts in Mumbai and the Bombay Stock Exchange building in 1993 to the 1999 Kargil war, global financial meltdown, demonetisation and the pandemic, the market has gone through tremendous volatility while emerging stronger after every turmoil.

1990 saw the Sensex touch 1000 and then move to 4000 in 1992 and, following the Harshad Mehta scam, tumble down to below 2000, only to cross 5000 points in December 1990. The next milestone for Sensex was the 10K mark, achieved in 2006, marking a 100X growth in the 27 years of Sensex, which indicated a compounded annual growth rate of 18.6% 1. The journey since has remained nothing short of stellar, from 20K in 2007 to 30K in 2015, after a dismal low of 7,700 in between. In 2019, the Sensex touched a record high of 39K, and since then, has been fuelled by a surge in retail investors keen on participating in the growth of the economy.

Image – BSE Sensex – 1979 to 2022 (Source Bloomberg)

Evolution of the Mutual Fund Industry

India embarked on its mutual fund journey in the year 1964, with the launch of the first scheme by the Unit Trust of India (UTI). The scheme garnered great investor interest and managed to accumulate a total AUM of INR 6,700 crore, by the end of 1988. UTI was launched by the Government of India and the Reserve Bank of India, with the intention of prompting citizens to save, invest and participate in the income, profits and gains realised from the acquisition, holding, management and disposal of securities and assets. The year 1987 marked the entry of public sector mutual funds set up by Public Sector banks and Life Insurance Corporation of India (LIC) and General Insurance Corporation of India (GIC). In May 2021, the mutual fund industry crossed a milestone of 10 crore folios during the month and as of July 2022 the industry’s AUM stands at INR 37.75 lakh crore.

A major stimulus to the MF industry came from the rising popularity of systematic investment plans or SIPs, and, as of 31st July 2022, the total number of SIP accounts in India stands at 5.62 crore (Source: AMFI).

Growth of Demat Accounts

Paving the way for retail investors, demat accounts help investors hold financial securities in a digital format, and, just during FY 2021, a total of 1.43 crore new investors joined the trading arena. Indeed, retail investors have shown tremendous passion for the markets, with the total count of demat accounts in India recorded at 96.5 million as of June 2022 (Source: CDSL, NSDL). Individual investors account for almost 45% of the equity cash segment, according to the Economic Survey, indicating the prevalence of retail investors and emphasising the changing investment scenario in the country while paving the way for new age investment options.

Rise of the Unicorns

Over the last few years, India has seen a significant rise in the number of unicorns, companies boasting a valuation of USD 1 billion or above. In the first half of the year, the Indian start-up space witnessed the addition of 20 new unicorns, including Fractal, Darwinbox, Polygon, Xpressbees, Oxyzo, Physics Wallah, and Purple, among others. Going ahead, a PwC report estimated that more than 50 other startups in India have the potential to enter the club before the year is through. 2021 witnessed the rise of 44 startup unicorns, a humungous increase from the cumulative total of 33 unicorns between 2011 to 2020.

Economic growth along with the spurt of entrepreneurial spirit and mushrooming of unicorns has naturally also resulted in tremendous wealth creation and consequent growth of UHNI & HNIs in India. Over 2020-2025 the total no. of HNIs is expected to cross 600,000 (CAGR of 75%). During the same period, the no. of UHNIs will cross 11,000 (CAGR of 63%).

Alternative Investments in India

Not surprisingly India is also seeing a strong uptick in demand for more sophisticated alternative investments, where the minimum ticket size for investment is INR 1 crore. The overall investments through Alternative Investment Funds (AIFs) is estimated to grow at a CAGR of 25%, between 2022 and 2025. AIF commitments have grown 42% year-on-year to Rs 6.94 trillion as of June 30 (Source:SEBI). The amount invested has risen 43% to Rs 3.1 trillion and the number of AIFs is inching towards the 1,000-mark.

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