In recent discussions, Madhabi Puri Buch, Chairperson of the Securities and Exchange Board of India (Sebi), expressed her observations regarding the soaring valuations in certain segments of small and midcap stocks, raising concerns that the market might be edging toward a bubble.
In her recent address, Buch highlighted how the Indian capital markets are currently enjoying higher valuations, largely attributed to the optimism and trust exhibited by foreign investors in the country’s potential.
Buch emphasized that with a price-to-earnings multiple ratio of 22.2, the Indian market surpasses many global indices’ averages. Despite concerns over the market being labeled as expensive, the influx of investments continues unabated. According to Buch, this reflects the global community’s confidence and faith in India, resulting in the market commanding such high multiples.
Having regular interactions with foreign investors as part of her responsibilities, Buch noted a significant surge in interest towards India. She attributed this interest to the rapid momentum gained by India’s economy after years of consistent growth. Foreign investors, she explained, are buoyed by various economic indicators such as the consistent growth in GST collections, advance tax payments, and the rising consumption of power and energy.
This growing interest has translated into tangible outcomes, with the total market capitalization of equities soaring to over Rs 378 lakh crore by the end of FY24, a remarkable leap from Rs 74 lakh crore just a decade ago. Buch highlighted that this surge has led the market capitalization to now mirror the overall GDP of the country.
Furthermore, Indian entities have leveraged this optimism by raising substantial capital from the markets, totaling Rs 10.5 lakh crore in FY24. A significant portion of this capital was raised through bond issuances, with over Rs 8 lakh crore being raised via this route.
Buch emphasized that the bond market has now accounted for over 62% of the total bank lending, underlining its growing importance as an avenue for raising capital.
In conclusion, Buch’s insights shed light on the remarkable trajectory of India’s capital markets, fueled by the unwavering trust and optimism exhibited by both domestic and foreign investors. Despite concerns over high valuations, India’s economic resilience and growth prospects continue to attract substantial investments, underlining its status as a beacon of opportunity in the global financial landscape.
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