According to SBI Economic Research, a 1% rise in market capitalisation boosts India’s GDP growth by 0.6%. This finding highlights the strong connection between a thriving market and overall economic performance. Increased investor confidence is a key driver of this growth.
How market capitalisation drives economic growth
The report from SBI confirms that a rise in market capitalisation positively impacts the real economy. Notably, this effect starts to wane after three time periods. The research shows that market capitalisation growth directly leads to GDP growth, but the reverse does not hold true.
Surge in funds mobilised by Indian companies
Over the past decade, Indian companies have seen a substantial increase in funds raised through capital markets. From ₹12,068 crore in FY14, the total amount raised grew to ₹1.21 trillion crore in FY25 (up to October). This surge in market activity underscores the strengthening of India’s capital markets.
Rising household investment in the stock market
Household investment in “shares and debentures” has significantly increased, reaching 1% of GDP in FY24, up from just 0.2% in FY14. The growing participation of households in market investments reflects a shift in how financial savings are allocated. In addition, the share of household financial savings in the stock market has risen from 1% to 5%.
Declining bank deposits and new investment opportunities
Bank deposits and currency share in household savings are declining, while new investment opportunities such as mutual funds are rising. Investors are seeking diverse options for wealth growth, contributing to a shift in financial behaviour.
Strong growth in demat accounts and financial inclusion
Since 2021, India has added around 30 million new demat accounts annually, with projections to surpass 40 million this year. By FY24, India’s total number of demat accounts exceeded 150 million, compared to just 22 million in FY14. This increase shows the growing trend of financial inclusion and market participation.
The link between market capitalisation and GDP growth
SBI’s report highlights the crucial role of market capitalisation in driving GDP growth. The surge in demat accounts and funds raised by companies indicates a growing market. With more households investing, the positive effects on India’s economic performance are expected to continue.
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