A rise in domestic investments has been one of the most significant contributors to the growth story of India. Domestic investments in India are divided into two parts - public investments and private investments. Private investments are further divided into two parts, which are household investments and corporate investments. Private domestic investments depend on a slew of factors - macroeconomic stability, high household savings, productivity, access to credit, resolution of non-performing assets, clearing up of balance sheets, etc.
Domestic investments and foreign investments in India work hand-in-hand to help the growth of the country. Growth in emerging economies like India results mainly from innovations that allow domestic sectors to catch up with cutting-edge technology. The process of catching up with the leader in any sector requires the cooperation of a foreign investor who is familiar with the leading technology and a domestic entrepreneur/investor who is familiar with the local conditions.
The Indian private investing space has also been showcasing signs of maturity over the past few years. The market has revealed that new investments accounted for about 50% of VC transactions. The VC-to-PE pipeline has also become robust and consistent.
The concept of 'Make in India' - Atmanirbhar Bharat, various PLI schemes, and financial incentives provided by the government are a few examples of investor-friendly programmes that domestic companies are utilising to increase their production base and create new capacities, which leads to increasing domestic investments. There are multiple investors driving domestic investments in the country:
India's economy showed great signs of recovery in FY22 after the COVID-19 pandemic. India’s nominal gross domestic product (GDP) at current prices is estimated to be at Rs. 301.75 trillion (US$ 3.62 trillion) in 2023-24. Additionally, the Nominal GDP at current prices in Q1 of 2023-24 was Rs. 70.67 trillion (US$ 848.92 billion), as against Rs. 65.42 trillion (US$ 785.85 billion) in 2022-23, estimating a growth of 8%. Real GDP at constant prices (2011-12) in the first quarter of 2023-24 is estimated at Rs. 40.37 trillion (US$ 484.94 billion), showing a growth of 7.8% as compared to the first quarter of 2022-23 estimated at Rs. 37.44 trillion (US$ 449.74 billion). These figures make India the fastest-growing major economy in the world, and this economic growth has translated to the domestic investment market in India. Retail investors, mutual funds, and PE/VC firms have all stepped up their domestic investments in the Indian market.
Retail and High Net-worth Individual (HNI) investors' and domestic institutional investors (DIIs) combined share, which includes domestic mutual funds, insurance companies, banks, financial institutions, pension funds, etc., reached an all-time high of 25.50% as of June 30th, 2023. In the Q1 (April-June) of 2023, Domestic institutional investors (DIIs) invested a record sum of US$ 405.24 million in Indian equities.
The share of retail investors in equity holding listed on the National Stock Exchange (NSE) reached an all-time high of 27% year-on-year (YoY) in (April-August) 2023. According to BSE, the number of registered investors on BSE has jumped nearly 24% year-on-year. In 2022, a YoY rise of over 40% in the number of BSE-registered investors in states like Arunachal Pradesh, Bihar, Uttar Pradesh, Assam, Nagaland, Mizoram, Meghalaya, Tripura, Odisha, Madhya Pradesh, Jammu and Kashmir, and Himachal Pradesh. In Q1 of 2023, retail holding went up in 908 companies listed on NSE. As on June 30th, 2023, the value of retail holdings was only Rs. 21.69 lakh crore (US$ 260.97 billion).
Around 130 SME companies went public in 2023 (till October 2023), raising a total of Rs. 3,540 crore (US$ 426.33 million) through IPOs.
The share of domestic Mutual Funds (MFs) in companies listed on the NSE increased and reached an all-time high of 8.64% on June 30th, 2023, up from 7.24% on June 30th, 2022.
India's Private Equity (PE)/Venture Capital (VC) investment environment is also scaling new heights, with increases in deal size, deal activity, and fundraising, as well as improvements in term sheets and benchmarking practices. Private Equity-Venture Capital (PE-VC) funds invested US$ 6 billion (across 139 deals) in India-based companies during the quarter ended September 2023. 1,261 deals were recorded of more than US$ 46 billion of Private Equity (PE) – Venture Capitalist (VC) investments in 2022.
In many ways, the year 2021 was a turning point for the Indian economy as initiatives like Atmanirbhar Bharat sped up the formal implementation of several production-linked incentives (PLI) schemes. There was also a push to negotiate comprehensive free trade agreements successfully negotiated with Australia and the UAE. This has led to a huge quantum of domestic inflows coming into the Indian market and making it resilient amidst global uncertainties. With the improving economic scenario, there have been quite a few investments in various sectors in India. Some of them are as follows:
With the government's focus on making business in India easier through the establishment of nation-specific offices to "handhold" foreign investment, India has advanced in recent years in the rankings for ease of doing business. The government has also attempted to rein in the aggressive tax administration through more openness and transparency. It has also taken multiple other initiatives to improve the business regulatory environment in the country and simplified the process of making domestic investments. Some of these are:
The mutual fund industry in India has been witnessing consistent growth in portfolio numbers over the past few years, as evidenced by the fact that the investor count is estimated to have expanded by 2 crore during CY2022. The Association of Mutual Funds in India (AMFI) is targeting a nearly five-fold growth in assets under management (AUM) to Rs. 95 trillion (US$ 1.30 trillion) and more than three times growth in investor accounts to 130 million by 2025. The AUM rose by 21% or Rs. 16,042.06 crore (US$ 1.93 billion) in September 2023. Assets Under Management (AUM) of the Indian Mutual Fund Industry as of September 2023, stood at Rs. 46.58 crore (US$ 560.46 billion).
To achieve a GDP of US$ 5 trillion by FY25, India needs to spend about US$ 1.4 trillion over these years on infrastructure. Liberal FDI policies, quick solutions to corporate disputes, a simplified tax structure, ease of doing business, and a boost to public and private expenditure are all part of India's attempt to implement reforms to unlock the country's investment potential, which is expected to improve the business environment.
In line with this, in May 2022, during the India-Denmark Business Forum, Prime Minister Mr. Narendra Modi applauded India's reforms and investment opportunities and stated that those who don't invest in the country are bound to miss out. He stated that India's ongoing economic reforms have created investment opportunities in various sectors like renewable energy, health, ports, shipping, circular economy and water management, and invited Denmark, as well as other foreign countries, to invest in these sectors.
Note: Conversion rate used for October 2023 is Rs. 1 = US$ 0.012
References: Press Information Bureau (PIB), Media Reports, World Bank, Database of Indian Economy (DBIE), Knight and Frank