Capital market fund raising in India is expected to witness a significant 21% growth in the financial year 2025, reaching ₹14.7 lakh crore compared to ₹11.8 lakh crore in the previous fiscal. This projection, shared by SEBI Chairperson Madhabi Puri Buch, underscores the robust activity in the Indian financial markets.
In the first nine months of FY2025 (April-December), a total of ₹10.7 lakh crore was mobilized from the domestic capital market, comprising ₹7.3 lakh crore through the primary debt market and ₹3.3 lakh crore from equity. If this trend continues, the fiscal year is poised to close with over ₹14 lakh crore raised, with equity contributions expected to touch ₹4.3 lakh crore by March 2025.
Breakdown of Fund Raising Sources
The primary debt market dominated the fund-raising activity, contributing a substantial ₹7.3 lakh crore in the first three quarters of FY2025. On the equity front, ₹3.3 lakh crore was raised, and an additional ₹1 lakh crore is projected in the final quarter, reflecting strong investor interest and market confidence.
Fundraising mechanisms like rights issues, Infrastructure Investment Trusts (InvITs), Real Estate Investment Trusts (REITs), and municipal bonds are also gaining traction. While current contributions from these instruments remain modest, their potential for growth in the coming years is immense.
Efficiency in Rights Issue Process
To enhance the appeal of rights issues, SEBI has introduced reforms to streamline the process. The total time for completing a rights issue has been significantly reduced from 317 days to just 26 days. Rights issues, which allow existing shareholders to purchase additional shares at a discounted price, are expected to play a more prominent role in capital mobilization with this reduced timeline.
Role of InvITs and REITs in Fund Raising
Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs) have emerged as innovative financial instruments for raising funds in the infrastructure and real estate sectors, respectively. In the first nine months of FY2025, these instruments raised ₹10,000 crore.
- InvITs: These trusts pool funds from investors to finance infrastructure assets, such as highways, power grids, and telecom towers.
- REITs: Similar to InvITs, REITs allow investors to invest in real estate assets like office spaces, shopping malls, and housing projects.
Although the current volumes are modest, both InvITs and REITs hold immense potential to attract larger investments, driven by India’s growing infrastructure and real estate needs.
Importance of the Bond Market
The domestic bond market has become a cornerstone of capital formation in India. According to Buch, the bond market contributes ₹60 for every ₹100 lent by the banking system to corporate India, highlighting its crucial role in financing.
The primary bond market remains robust, but the secondary market for bonds has seen moderate activity due to a preference among investors to adopt a buy-and-hold strategy. Enhancing liquidity in the secondary bond market could further strengthen the market’s role in capital formation.
Domestic Institutional Investors as Stabilizers
Domestic institutional investors (DIIs) have emerged as key players in stabilizing the Indian capital markets during periods of foreign fund outflows. By providing a counterbalance to foreign portfolio investors, DIIs have helped maintain market resilience, reducing volatility and instilling investor confidence.
Projected Growth in FY2025
The expected increase in fund-raising activity in FY2025 is driven by a combination of factors, including:
- Economic Growth: India’s economic recovery post-pandemic is creating opportunities for capital expansion across sectors.
- Infrastructure Development: Increased focus on infrastructure projects is driving the need for large-scale funding, with InvITs playing a pivotal role.
- Investor Confidence: Reforms by SEBI, coupled with stable macroeconomic indicators, have boosted investor confidence in Indian markets.
Government and SEBI Initiatives
The government and SEBI have taken proactive steps to support the growth of capital markets. These include:
- Ease of Doing Business: Simplified regulations and faster processing times for rights issues and other fund-raising mechanisms.
- Incentivizing New Instruments: Promoting InvITs, REITs, and municipal bonds as viable investment options.
- Strengthening Investor Protection: Measures to safeguard investor interests and ensure transparency in market operations.
Outlook for the Capital Market
With fund-raising activity projected to rise significantly, the Indian capital market is on a path of sustained growth. Equity and debt markets are expected to remain vibrant, supported by investor participation and regulatory reforms.
Moreover, the increasing popularity of instruments like InvITs and REITs signals a shift towards innovative and diversified fund-raising avenues. This evolution aligns with India’s broader economic goals of infrastructure development and urbanization.
As the fiscal year progresses, the capital market’s performance will continue to be a key indicator of India’s economic health. The combined efforts of regulators, institutional investors, and market participants are set to drive the market towards new milestones, further solidifying India’s position as a global investment destination.
The capital market’s growth trajectory for FY2025 underscores the dynamic nature of India’s financial ecosystem. With a strong regulatory framework and active investor participation, the market is well-positioned to achieve its ambitious targets while contributing to the nation’s overall economic development.