From sarees to shares Ashish Vaishnav/SOPA Images/LightRocket/Getty Images
A bull market without the bulls of Wall Street. That is what India’s public equity market has become: an exuberant fundraising machine fuelled by a surging tide of domestic capital. Last year Indian equity markets pulled in $70bn, second only to America. Roughly $19bn came from initial public offerings (IPOs), eleven of which surpassed $500m in size. Three-quarters of this was bought by Indian investors. This is no aberration. A structural pivot is underway, which is turning a formerly foreign-dependent market into a self-sustaining capital engine.
India has pulled off something rare in emerging markets: it has decoupled the strength of its equity markets from the whims of foreign institutional investors. Goldman Sachs estimates domestic investors have channelled $130bn into equities over the last three years, enough to match, if not exceed, the net inflows from foreign funds. Retail participation is climbing. Mutual fund penetration is deepening. And the number of demat accounts is rocketing exponentially. Capital formation in India is increasingly being driven from the inside out.
Markets are maturing because the people and firms behind them are. On the demand side, Indian households are recalibrating their savings preferences. The old certainties of gold, real estate and fixed deposits no longer hold the same allure. Rather systematic investment plans (SIPs) and equity mutual funds as well as direct stock market exposure are absorbing a growing share of surplus wealth. The new investor is not an NRI hedge fund manager in Singapore, but a salaried professional in Surat.
On the supply side, the once-fragmented private equity (PE) ecosystem has matured. Venture-backed firms that were previously content with private capital are heading for the public markets: not in desperation but in confidence. Consumer-facing tech firms, digital platforms, infrastructure developers and financial services providers are seeking liquidity and price discovery on domestic bourses. Some, such as Flipkart and PhonePe, have even explored redomiciling from America to India in anticipation of more favourable valuations and deeper liquidity. Silicon Valley remains the font of capital but the holy grail of exit is now in Mumbai.
The outcome is a surprisingly even-keeled IPO environment. During the post-pandemic frenzy of 2021 Indian markets briefly mirrored the American mania for digital firms with negligible earnings and lavish projections. Today’s offerings by contrast cut across sectors: renewable energy firms, manufacturing stalwarts, financial giants and legacy consumer brands are all raising money. This broader base has brought stability, though not restraint.
Valuations remain frothy. Indian equities trade at around 23 times earnings, compared with the historical average of 17. Emerging-market funds balk at these levels but they have balked before. The premium appears sticky. Investors are paying for growth and a perception of macroeconomic durability. Japan sustained such multiples in the 1980s; America has done so since the 2010s. If capital is patient and earnings deliver prices hold.
The market boom is taking place in a macroeconomic environment that remains relatively stable, even if not spectacular. GDP growth is around 6.5%. Inflation is contained within a manageable band. And the rupee has avoided the worst of currency turmoil affecting peers like the Turkish lira or Argentine peso. Global investors view India as a geopolitical hedge: one of the few populous democracies aligned with the West and not consumed by its dysfunctions. That matters. Even as foreign investors retreat from secondary markets, primary issuance is oversubscribed.
The role of policy, though secondary, has not been trivial. Tax reform, the Goods and Services Tax (GST), streamlined digital infrastructure and improvements in ease of doing business have made public listings smoother. SEBI, India’s market regulator, has sharpened disclosure norms and eased compliance bottlenecks. But what drives the market is not regulation. It is reallocation, an ongoing behavioural shift in how Indian households invest.
The old capital model of Indian markets—depend on foreign inflows in bull years, panic in downturns—is giving way to something sturdier. Domestic capital is proving more stable and more ambitious. It is willing to pay a premium and take longer bets, as well as support complex businesses. Foreign capital, once the arbiter of market discipline, now often plays catch-up.
Some risks do loom, however. Cyclical slowdowns, global liquidity crunches or geopolitical spats could trigger bouts of volatility. IPO pipelines may thin in 2025 if valuations wobble or sentiment dips. But the underlying base is strong. Unlike previous cycles, there is no single story inflating the market (not tech nor infrastructure or global inflows). The growth is distributed, sectorally and geographically.
Foreign investors, essential to the Indian equity story in the past, now provide roughly one-fifth of IPO capital. That share could tumble further without endangering market function. India’s equity ecosystem now does not depend on external validation. Global PE funds that sought New York or London listings for their Indian portfolio companies in the past are now revising their exit strategies. The gravitational pull of Dalal Street has strengthened.
Indian equity markets are not yet fully global. Derivatives are shallow. Debt markets lack breadth. Corporate governance is uneven. But they are starting to resemble the financial backbone of a maturing economic power. If public markets can continue to absorb PE exits and support scale fundraising, as well as offer liquidity without subsidy or distortion, they could become the capital anchor of the region.
That perhaps is the most striking of all. A decade ago the question was whether Indian markets were ready for modern finance. The new question is whether global finance is ready for Indian markets. The answer increasingly is being written in rupees. ■
