New Tidal Forces For India’s Startup Economy

India exited FY24 strongly with a nominal GDP of $3.7 trillion and is now the fifth-largest economy in the world. It grew at a phenomenal 16% in FY23 (following 18.4% in FY22) in nominal terms, continuing to beat multiple forecasts that growth would slow down post the pandemic recovery. India remains the only large economy to continue growth at this pace, while the developed world and China have slowed down. At this rate, it is inevitable for the Indian economy to grow into the third largest in terms of GDP globally, and breach the $10 trillion mark over the next 15 years.

India already hosts the third largest startup ecosystem in the world after the US and China. Analyst reports show that while $136 billion entered the Indian startup ecosystem between 2014 and 2022, this number pales compared to the $837 billion and $2.7 trillion that entered the Chinese and US ecosystems, respectively, during the same period. India now has 110 unicorns, also the third highest globally. 

The total value created by the Indian startup ecosystem has crossed $500 billion, and estimates suggest it may reach $1 trillion by 2030. There have been 26 tech IPOs completed already, with at least 23 more having filed and in the pipeline. Over $90 billion has been returned via exits cumulatively across Indian PE-VC just between 2021 and 2023. The past three years have seen India’s PE-VC ecosystem go from strength to strength, experiencing an exceptional bullish run with more than $60 billion in deal value unlocked each consecutive year since 2020. The major positive shift that has happened here is that Indian startups can now aim for an Indian IPO to continue their growth story as listed companies.

India’s stock market has overtaken Hong Kong’s to rank as the fourth-largest equity market globally. Fifty-four days after reaching a $4 trillion equity market capitalisation, India’s capital markets ascended to the fourth spot globally in January 2024, surpassing Hong Kong. This advancement marks India's continued ascent in the global stock market rankings, having previously overtaken both France and the UK in June 2023, positioning it behind only the US, China, and Japan. As of Aug 2024, India’s total market capitalisation stood at $4.95 trillion. 

India's stock market is buoyed by optimism surrounding the country's economic prospects, enhanced liquidity, strong corporate earnings, and increasing domestic participation. As a standout performer in the Asia-Pacific region, India is witnessing significant growth in its retail investor base, supported by steady foreign institutional investor inflows and robust investor confidence. The number of registered stock market investors grew by 22.4% to 8.49 crore (84.9M) as of December 2023, up from 6.94 crore (69.4M) at the end of 2022, breaching the 8 crore mark (80M) within just eight months.

The inbound local liquidity of $4 billion monthly from SIPs, pension programs, and institutional allocations has provided a reliable substrate of support for the Indian markets. Even though net FII was outward in 2023, Indian markets have had some of their best quarters yet. Over CY 2023, the markets have accepted an IPO every 22 days, and the indices remain hungry for great Indian companies bringing new dimensions of the economy into the public markets.

There are 500 listed companies at +$1 billion valuation already, which is impressive. The private markets will now serve as the originator for the next set of IPO candidates. India has 110 private unicorns - even if 50% go public, they could contribute 10% to the total pool of listed +$1 billion companies. India already has 80+ unicorns poised for IPOs and 200+ startups valued between $200 million to $1 billion, indicating the potential for more tech companies to list on the public markets. This trend could reshape Indian stock markets over the next decade, with tech stocks potentially making up 20% of indexes over the next two decades. The public markets’ favourable stance toward tech stocks should encourage more tech entrepreneurs to consider IPOs seriously for their growth forward.

The country’s large and consistent internal demand, more efficient market practices, rapid formalisation, intense capex expansion, growth in local manufacturing, and intentional shift towards renewable energy are multiplexing to support a national fabric of resilience against global uncertainty. 

This is the decade where we will see a surge of Indian value creators that will realign the economy towards an inclusive tech-first future and support the country's ascent towards becoming the third largest economy globally.