Reflecting on India's economic vitality under Modi's governance

The vibrancy of India's economic landscape is emphatically underscored by a pronounced increase in initial public offerings (IPOs), particularly with small and medium enterprises (SMEs) taking centre stage. This trend not only showcases the burgeoning economic assurance within the nation but also highlights its significant steadiness. The substantial surge in public equity fundraising, especially among SMEs, is a direct result of the central government's profound policy reforms and effective governance. In 2023, the IPO market witnessed a remarkable 59 per cent jump, soaring to Rs 21,44,283 crore from the previous year's Rs 7,90,886 crore, indicating vigorous growth across the entire spectrum.

While the recent phenomenon of SME IPOs being oversubscribed is frequently discussed, a crucial element often missed is the increasing readiness of the general investors, especially retail ones, to embrace higher financial risks. This change in investor sentiment underscores a broader trend where, amid an environment of perceived reduced risk factors—bolstered by political stability and an optimistic economic forecast—the general public's decision-making is significantly enhanced. Investors are notably keener and adept at recognizing opportunities within India's IPO market, as demonstrated by the robust participation recently. This progression not merely evidences faith in the nation's economic policies and governance but also marks a matured investor outlook towards market opportunities, supported by the stability and growth potential envisioned for the Indian economy.

IPOs fundamentally act as a gauge of economic vitality, providing valuable insights into a country's broader economic conditions. They go beyond simple financial transactions to serve as indicators of investor confidence, reflecting their willingness to take risks in an environment they perceive as stable and promising. The increase in IPO activities during the current government's tenure highlights widespread recognition of their successful efforts in creating a favourable climate for business and investment. This trend not only demonstrates the effectiveness of the government's economic policies but also signals a trajectory towards unmatched growth and a heightened position on the global stage for India.

Recent reforms by the Securities and Exchange Board of India (SEBI) have influenced the landscape of India's capital markets, impacting investments in IPOs through changes in sector dynamics. The implementation of the T+1 settlement cycle on January 27, 2023, marks a significant development, increasing liquidity, improving investor confidence, and operational efficiency by providing quicker access to funds after trading. Looking forward, SEBI's plan to introduce an optional T+0 settlement cycle by the first half of 2024, aiming for instant settlements by 2025, highlights a commitment to real-time transaction capabilities, setting the stage for further growth.

Additionally, efforts to strengthen governance across market institutions, enhance sustainability reporting for listed companies, and streamline Foreign Portfolio Investors (FPIs)'s onboarding process, promote higher regulatory compliance and foster a more investor-friendly environment. Furthermore, SEBI's enforcement of a block mechanism in 2021 has been a key reform, targeting clients initiating sale transactions to address the Early Pay-In (EPI) issue, significantly improving the market's security framework. This initiative has been a key driver behind the subsequent successes of the market, embodying SEBI's approach to innovating and securing India's capital market infrastructure.

Following this reform, a notable milestone was achieved on December 5, 2023, when the Indian capital market surpassed a market capitalization of US$4 trillion. This considerable growth, realized over the last four years, highlights the market's robust expansion and its growing competitiveness on the global stage.

The combination of these initiatives and reforms has streamlined the investment process, fortifying the Indian capital markets' overall framework. As a result, the market has become more resilient, transparent, and investor-friendly, embodying the strength of India's economy and the effectiveness of its regulatory governance.

(The author is Founder and Managing Director of Highbrow Securities)