Stock Markets

The year 2007 saw Indian stock markets scaling new peaks. It has emerged as the third best performing market in the world with a dollar return of 71.23 per cent. The popular Bombay Stock Exchange (BSE) benchmark index, sensex, also posted its highest ever absolute gain of 6500 points in over two decades.

This performance of Indian stock markets has led to the total investor wealth of Bombay Stock Exchange (BSE) surging to a record high of over US$ 1.7 trillion, with an average increase of over US$ 10.18 million in every minute of trading during 2007. At the end of 2006, the total market capitalisation stood at US$ 812 billion.

Simultaneously, the National Stock Exchange (NSE) has climbed to the top spot in stock futures contracts and number-two slot in the index futures segment in the world.

According to Ernst & Young, India was also the fifth largest market in terms of number of IPOs and seventh largest in terms of the proceeds for the year. Indian companies raised a whopping US$ 11.48 billion through public issues in 2007, which is 83 per cent higher than US$ 6.28 billion mobilized in 2006.

The robust performance of the Indian stock markets can also be seen in the huge increase in the funds mobilised by the corporate India. During 2007-08, India Inc mobilised a whopping US$ 8.13 billion through issue of shares on rights issue, which is almost an eight-fold increase over US$ 926.32 million raised in 2006-07. In fact, the mobilisation of the funds in 2007-08 was more than the combined mobilisation of the preceding 12 years.

Simultaneously, a whopping US$ 13.07 billion has been raised through by India Inc through public issues, according to data compiled by Prime Database. This is almost twice that of US$ 6.25 billion mobilised in 2006-07 and the highest ever in the last six years. While initial public offerings mobilised US$ 10.34 billion (about 79.14 per cent), follow-on public issues mobilised US$ 2.53 billion.

The flurry of fund raising activity by the companies on the Indian stock exchange is likely to continue in 2008-09. Already, 125 companies have filed their draft offer documents (including rights and follow-on issues) with the Securities and Exchange Board of India (SEBI), to jointly raise around US$ 5.14 billion. These include: JSW Energy, Jaiprakash Power Venture, Adani Power, Bharat Oman Refineries and Future Ventures India among others.

Private Equity

The year 2007 was a watershed for private equity market, which has emerged as the most preferred mode of fund mobilization for India Inc. The capital mobilised through this route was higher than the funds mobilized through IPOs, follow-on issues and qualified institutional placements put together.

India, in fact, topped the Asia private equity chart for the first time in 2007 in terms of aggregate deal value. According to Grant Thornton, a total of US$ 17.14 billion was mobilised through 386 deals by India Inc in 2007, compared to US$ 7.8 billion in 2006. Real estate, infrastructure, banking and financial services were the dominant sectors attracting about 55 per cent of the total private equity investments.

The growth continues apace in 2008. During January-March 2008, private equity firms invested about US$ 3.3 billion across 97 billion, which was 22.22 per cent higher than the US$ 2.7 billion clocked in the corresponding period last year.

A study by global consulting firm Boston Analytics, the average deal size has increased from US$ 8.4 billion in 2003 to US$ 36.8 billion in 2007. And driven by the robust economic growth and attractive market valuations, private equity investments are estimated to continue strongly through 2010.

Structured Finance

India has emerged as the fastest growing market in the Asia-Pacific region for structured finance, a process of arranging funds by banks and other entities through partly selling their loan books. It was also the second largest market for domestic issuance in the structured finance market.

Within this market, Asset Backed Securities (ABS) market has been the dominant segment than Residentially Market Backed Securities (RMBS). This market has been growing at a frenetic pace ever since the RBI issued revised guidelines on securitisation in 2006.

For example, according to Moody's Investors service, domestic structured finance transactions grew by a whopping 90 per cent during the first half of 2007 to US$ 5.5 billion compared to US$ 2.9 billion in the corresponding period in 2006. While ABS accounted for 64 per cent of the total issuances, securitisation of single corporate loans accounted for 20 per cent.

Mutual Funds

India is also one of the fastest growing market for mutual funds industry attracting a host of global players. The combination of increasing number of fund houses (along with new schemes) and increase in the number of people parking their savings in mutual funds has resulted in total funds mobilisation increasing at a whopping 124.93 per cent during 2007-08 to stand at US$ 1.11 trillion as against US$ 485.13 billion in 2006-07.

The average assets under management (AUM) of the mutual fund industry for March 2008 stood at US$ 134.76 billion as against US$ 89.86 billion at the end of 2006, representing a year on year growth of 49.96 per cent.

With accelerating investor interest shown in mutual fund segment, the number of investor folios of the MFs increased to 43.7 million at the end of March 2008, from 27.9 million at the end of January 2007 (a growth rate of 54 per cent). Simultaneously, there has been an increase in the number of distributors to 72,108 (excluding 107 banks) till March 2008 from 54,000 in January 2007.

In the new fiscal year (2008-09), the growth momentum of the mutual fund industry continues. Total fund mobilisation has increased by a whopping 127.97 per cent to US$ 120.75 billion during April 2008, compared to US$ 52.97 billion in April 2007. Consequently, AUM of the mutual fund industry has increased to US$ 133.86 billion for April 2008, against US$ 83.5 billion in the corresponding period in 2007.

Continuing the growth, the Indian mutual funds market is estimated to grow at a CAGR of 18 per cent in the next five years, with the country’s mutual funds assets expected to more than double to US$ 298.73 billion by 2012, according to a report by US-based financial services research and consulting firm Cerulli Associates. Consequently, there would be an entry of about 15 new fund houses, in addition to the 33 fund houses already in operation by the end of 2007.

Banking

The burgeoning economy, surging foreign investment, financial sector reforms and a favourable demographic profile has led to the Indian banking industry emerging as one of the fastest growing in the world. The industry's business grew at a CAGR of 20 per cent from US$ 471.11 billion as of March 2002 to US$ 1175.61 billion by March 2007. Significantly, the newly licensed private sector business has grown almost twice (1.75 times) as that of banking industry as a whole, leading to their share in total banking business increasing from 9 per cent in 2001-02 to 16 per cent in 2006-07.

This boom in the banking industry has propelled nine Indian banks to the list of top 50 Asian Banks, as per this year's Asian Banker 300 report. Similarly, seven Indian microfinance institutions find place in Forbes list of World's Top 50 Microfinance Institutions.

Despite such impressive performance, the potential for further growth is huge considering the fact that India has second largest financially excluded households (about 135 million) in the world. In fact, according to Boston Consulting Group, India is the fastest growing incremental revenue pool in the world.

Insurance

The liberalisation of the rules for the entry of domestic and foreign players has had a favourable impact on this sector, leading to premium collections growing by 19.9 per cent in 2006-07, compared to the world average of 2.9 per cent. Consequently India became the 15th largest insurance market from 19th in 2005.

This growth looks particularly impressive when seen against the fact that the combined penetration of both life and non-life is less than 2 per cent of the GDP compared to world average of 7.52 per cent. Clearly, the scope for growth is enormous.

With increasing per capita income, insurance penetration and entry of new players, the Indian insurance industry is estimated to grow to US$ 50.9 billion by 2010 from around US$ 12.72 billion in 2007. The private players are likely to see a growth rate of 140 per cent during this period.

Debt Market

While the Indian financial sector was dominated by the stellar performance of the stock markets, the Indian debt market had its own share of excitement. India Inc increased its collections through the debt market by as much as 53.84 per cent to US$ 20 billion in 2007 from US$ 13 billion in 2006.

According to a report by Goldman Sachs, with insurance, mutual funds and pension sector experiencing rapid growth, India's debt market is estimated to grow four fold, from about US$ 400 billion (45 per cent of GDP) in 2006 to about US$ 1.5 trillion (about 55 per cent of GDP) by 2016. Significantly, the non-government sector is expected to grow from US$ 100 billion in 2006 to US$ 575 billion in 2016, increasing its share in GDP from 10 per cent to 22 per cent.