Indian Equity Market: A Comprehensive Guide

The Indian equity market is a vast and complex landscape, but don't worry, we've got you covered. It's the 10th largest stock market in the world by market capitalization, with a total market value of over $3.4 trillion.

With a history dating back to 1875, the Indian equity market has come a long way. The Bombay Stock Exchange (BSE) was established in 1875 and is the oldest stock exchange in Asia. It has been in operation for over 147 years.

The Indian equity market is home to over 5,000 listed companies, offering a wide range of investment opportunities. The market is divided into two main segments: the primary market and the secondary market.

The Indian equity market is a significant player in the global financial landscape. The main stock market in India is the Bombay Stock Exchange (BSE), which has 5,315 listed firms.

The BSE is one of the oldest and most respected stock exchanges in the world, with a rich history dating back to 1875. It is a major platform for investors to buy and sell shares of Indian companies.

The Indian equity market offers a wide range of investment opportunities for both domestic and foreign investors.

The regulatory framework of India's equity market is overseen by the Securities and Exchange Board of India (SEBI), established in 1992 as an independent authority.

SEBI has been instrumental in laying down market rules in line with the best market practices, ensuring a fair and transparent environment for investors.

SEBI enjoys vast powers of imposing penalties on market participants in case of a breach, providing a strong deterrent against any wrongdoing.

The regulatory framework in India is overseen by the Securities and Exchange Board of India (SEBI), which has been in place since 1992.

SEBI has the authority to impose penalties on market participants who breach market rules, which is a key aspect of maintaining fair market practices.

In 1992, SEBI was formed as an independent authority to regulate the stock market in India.

SEBI's powers are vast, allowing it to take action against market participants who fail to comply with market regulations.

Since its inception, SEBI has been working to establish market rules that align with best practices, ensuring the stability and integrity of the Indian stock market.

The government of India prescribes the FDI limit, and different ceilings have been prescribed for different sectors.

To give you a better idea, the maximum limit for portfolio investment in a particular listed firm is decided by the FDI limit prescribed for the sector to which the firm belongs.

An FII can invest up to 10% of the equity of any one company, subject to the 24% limit on overall investments.

This 24% limit may be raised to 30% for individual companies that have received shareholder approval to do so.

FIIs are allowed to invest 100% of their portfolios in debt securities.

Investing in India's markets is a great option for foreign investors, as India has the fifth-largest economy in the world by GDP, with a 2023 GDP of $3.7 trillion. This makes it an attractive destination for foreign investments.

To invest in India, you can choose from various options such as foreign direct investment (FDI) and foreign portfolio investment (FPI). FDI involves taking part in the day-to-day management and operations of a company, while FPI involves investing in shares without any control over management and operations.

Foreign institutional investors (FIIs) can invest in India's markets, and they mainly consist of mutual funds, pension funds, endowments, sovereign wealth funds, insurance companies, banks, and asset management companies. FIIs can also invest in unlisted securities outside stock exchanges, subject to the approval of the price by the Reserve Bank of India.

India-focused exchange-traded funds (ETFs) make investments in indexes made up of Indian stocks, and most of the equities included in the index are listed on the NYSE and Nasdaq. Two popular ETFs based on Indian stocks include the iShares MSCI India ETF (INDA) and the Wisdom-Tree India Earnings Fund (EPI).

The Indian stock exchanges are the backbone of the country's financial system. The Bombay Stock Exchange (BSE) is the older stock market, established in 1875.

Both the BSE and National Stock Exchange (NSE) follow the same trading mechanism, trading hours, and settlement process. The BSE has 5,315 listed firms as of Jan. 30, 2024, while the NSE has 2,266 listed firms as of Dec. 31, 2023.

Almost all significant firms of India are listed on both exchanges. The NSE is the largest in volume, which is a testament to its efficiency and popularity. The BSE is the older stock market, but the NSE has caught up in terms of volume.

Selling in the stock market can be a complex process, but did you know that foreign investors sold a whopping Rs 1.19 lakh crore in the stock market, while investing Rs 1.21 lakh crore through the primary market route.

The selling through exchanges was mainly due to high valuations, which foreign investors found not commensurate with economic news during the year. This led them to book profits in the secondary market.

However, foreign investors remained purchasers mainly in initial public offerings (IPOs) in the primary market, where they found fair valuations. This trend suggests that investors are looking for opportunities with more promising growth prospects.

The primary market route offers a chance to invest in new-age companies such as digital, renewables, electric vehicles, contract development and manufacturing organisation (CDMO), electronic manufacturing services (EMS), and food delivery and quick commerce, which caught the attention of foreign investors.

India has the fifth-largest economy in the world by GDP, with a 2023 GDP of $3.7 trillion.

To invest in India, you can be a foreign institutional investor (FII) or one of the sub-accounts of a registered FII, which is granted by the market regulator, SEBI.

Foreign institutional investors mainly consist of mutual funds, pension funds, endowments, sovereign wealth funds, insurance companies, banks, and asset management companies.

All investments in which an investor takes part in the day-to-day management and operations of the company are treated as foreign direct investment (FDI), whereas investments in shares without any control over management and operations are treated as foreign portfolio investment (FPI).

The maximum limit for portfolio investment in a particular listed firm is decided by the FDI limit prescribed for the sector to which the firm belongs, with a 10% limit on overall investments.

Foreign entities and individuals can gain exposure to Indian stocks through institutional investors, such as exchange-traded funds (ETFs), exchange-traded notes (ETNs), and American depositary receipts (ADRs).

India plans to spend $1.4 trillion on infrastructure through the National Infrastructure Pipeline (NIP) in the next five years.

Foreign investors can invest in the Indian stock market through various channels, including ETFs and ADRs, which provide exposure to Indian stocks without the need to directly invest in the Indian market.

The Indian government prescribes the FDI limit, and different ceilings have been prescribed for different sectors, with a 24% limit on overall investments.

Retail investors can invest in ETFs and ETNs based on Indian stocks, which provide a convenient and cost-effective way to gain exposure to Indian equities.

The Indian stock market has consistently outperformed Emerging Market peers, with the blue-chip NSE Nifty 50 climbing over 200% since the low of the pandemic in March 2020.

Investing in India can be a lucrative opportunity, but it's essential to understand the market dynamics. The Bombay Stock Exchange (BSE) is one of the largest stock exchanges in India, and it's home to some of the country's biggest companies.

Reliance Industries is the largest company on the BSE, with a market cap of over $229 billion as of Jan. 30, 2024. This gives investors a sense of the scale and potential of the Indian market.

The BSE's largest company is a significant player in the Indian economy, and its performance can have a ripple effect on the market as a whole.

India's growing middle class is expected to drive consumption and demand for goods and services, creating opportunities for businesses to tap into this emerging market.

The country's favorable demographics, with a young population and increasing urbanization, are expected to support economic growth and investment opportunities.

India's GDP is projected to grow at a rate of 7-8% annually, making it an attractive destination for investors seeking high growth potential.

A significant portion of India's population is expected to enter the middle class, with estimates suggesting that over 450 million people will join the middle class by 2030.

The country's growing infrastructure, including roads, ports, and airports, is set to support economic growth and investment opportunities.

India's favorable business environment, with a relatively low corporate tax rate of 22% and a simplified tax regime, is expected to encourage entrepreneurship and investment.

India's growing tech industry, with a talent pool of over 3.5 million software professionals, is expected to drive innovation and growth in the sector.

The country's focus on digital payments and financial inclusion is expected to drive growth in the fintech sector, with an estimated 1 billion digital payments expected by 2023.

The Indian equity market has been on a tear, scaling new all-time highs this year and consistently outperforming its Emerging Market peers.

Since the pandemic low in March 2020, the blue-chip NSE Nifty 50 has climbed over 200%, with the total market cap now around $5 trillion.

Recent trading has been volatile, with lackluster first quarter earnings and slowing GDP growth giving investors pause.

Investors are cautiously optimistic, with Rajiv Batra, Head of Asia Pacific Equity Strategy at J.P. Morgan, saying he's "more cautiously optimistic on a near-term basis."

The market has been range-bound, rather than continuing the same bullish trend seen from 2021 onward, and extreme heatwaves followed by flooding have impacted demand.

The Indian stock market is home to two prominent market indexes: Sensex and Nifty. These indexes track the performance of the top companies listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).

Sensex, the oldest market index for equities, includes shares of 30 firms listed on the BSE, with data available from 1979 as the base year. It was created in 1986.

The Standard and Poor's CNX Nifty, on the other hand, includes 50 shares listed on the NSE and was created in 1996.

Here are the key differences between Sensex and Nifty:

Both indexes are widely used to gauge the performance of the Indian stock market, with Sensex being the oldest and most established of the two.

The Indian equity market has been on a tear, scaling new all-time highs this year and outperforming Emerging Market peers.

Despite the recent volatility, the blue-chip NSE Nifty 50 has climbed over 200% since the pandemic low in March 2020, with the total market cap now around $5 trillion.

Lackluster first-quarter earnings and slowing GDP growth have given investors pause, cooling to a 15-month low.

Rajiv Batra, Head of Asia Pacific (ex-Japan/China) Equity Strategy at J.P. Morgan, is cautiously optimistic on a near-term basis, citing an extreme heatwave followed by flooding that impacted demand.

Earnings and growth in the last quarter have not met expectations, a departure from the bullish trend of the past three years.

Domestic institutional investors and a surge in retail participation have driven strong returns in India.

India is still an under-allocated market for major EM portfolio managers, and foreign investment has slowed in recent months.

Average portfolio inflows in May-June roughly halved from their Q1 2024 pace, according to J.P. Morgan Research data.

Strong debt inflows to EM Asia have been narrowly based in Korea and India, with the latter benefiting from its recent inclusion in the J.P. Morgan GBI-EM bond index.

However, this trend has started to turn, with India recording outflows worth $0.5 billion through August after receiving strong equity inflows worth $6.5 billion over June-July.

State elections are approaching, and investors tend to hold off on trading until after the elections.