According to a study published September 19 by the investment bank, Indian start-ups have raised $10 billion in IPOs this year, more than in the previous three years.
As per Goldman Sachs, the pipeline for prospective public offerings will stay strong over two years. According to Goldman Sachs, up to 150 private companies might list on the public market in the next 36 months.
“Within next 2-3 years, we anticipate all new IPOs will add about US $400 billion in stock market valuation,” Goldman analysts stated.
They predicted that by 2024, India’s total stock market value will have risen from $3.5 trillion to over $5 trillion. It would very indeed become the South Asian country the world’s fifth-largest by stock market capitalization, overtaking the United Kingdom and the Middle East.
According to some investors, many of India’s top technological start-ups have declared plans to go public, heralding the start of a new era for the whole ecosystem.
“What we’ve been pointing is basically, as great as China was during previous few years, where we used to have this newfound China storey — which is quiet, very efficient and profitable for investment,” stated Timothy Moe, the co-head of Asia macro research at Goldman Sachs.
The digital economy of India
India has over 800 million internet users and over half a billion smartphone users, making it the second-largest smartphone market in the world after China. The availability of low-cost mobile data has contributed to the rise. Many industries, including food delivery, commerce, education, and digital payments, were driven online by the coronavirus epidemic.
Before the pandemic, several critical infrastructural advancements boosted start-ups’ capacity to scale up and grow.
Looking ahead, we believe that over the next 2-3 years, Indian equity indexes will witness a more excellent representation of new-economy sectors as big digital IPOs are included in the index.
In recent years, the number of so-called unicorns — start-ups valued at more than $1 billion — has risen dramatically in India. According to Goldman, it is owing to the internet ecosystem’s fast expansion and increased private capital availability, and a clear regulatory framework.
At least 67 private start-ups in India meet the criteria of a unicorn, with 27 of them claiming to have reached a $1 billion valuation by 2021. Most of them are concerned with India’s digital economy.
Possible reasons behind the rise of the stock market in India
A significant rise in global liquidity might also be a factor. Inflows of foreign direct investment (FDI) totaled $36.18 billion in FY21, indicating that this is the case.
In addition, the pandemic, which has caused people to spend more time at home, could be another factor contributing to their interest in stock market trading.
In recent years, the market capitalization of stock markets throughout the world has increased significantly. However, it has been higher in India than in other major countries. The stock market valuation of the Bombay Stock Exchange (BSE) Sensex is currently 1.8 fold that it had been a year earlier. Russia had a 1.6- times increase, followed by Brazil, China, France, and South Africa.
Changes in the stock market
According to the investment bank, India’s global stock market share is expected to rise from 2.8 percent to 3.7 percent in the next five years. That’s greater than Goldman’s forecast of 40 basis points growth in India’s proportion of global GDP over the next five years.
As big flotation from internet start-ups gets added to the original index, Indian indexes such as the Nifty may witness a more excellent representation of the so-called emerging sectors of the economy.
Currently, the indices are dominated by financial equities and businesses belonging to the more conventional industries like energy and information technology.
The phrase “new economy” refers to high-growth businesses that are supported by cutting-edge technology. They are thought to be the engine of economic development.
“India’s profits have trailed the region due to a dearth of fast-growing new economy/digital firms in the index,” the analysts added, “while the internet-heavy China index has produced the greatest earnings over the last decade.”
According to Goldman’s calculations, the consumer discretionary and communication services sectors will have more weight on the indexes. Segments such as e-commerce, internet, internet retail, and media are expected to have more weight on the indexes. Analysts predicted that other sectors like commodities and software services would lose ground.
“We believe that over the next 2-3 years, Indian equity indices will see a greater representation of new economy sectors as large digital IPOs are included in the index,” Goldman said.
Article Proof Read & Edited By Shreedatri Banerjee