Sandeep Sabnani, head of equities product strategy and growth at ION Markets, explores the explosion of the Indian equities market, and the role that trading technology is playing in this unprecedented growth.
In recent years, the Indian equities market has undergone a profound transition, emerging as a key player in the global financial landscape. In fact, the combined value of shares listed on Indian exchanges surpassed US$4trn on 5 December 2023 and just recently overtook Hong Kong to become the fourth biggest equity market globally. This rush has been driven by a number of factors including the burgeoning middle class, a surge in domestic investors, significant inward investments, as well as supportive government initiatives.
As the market continues to expand, we are also seeing a technological revolution in the trading systems that sustain the market. Broker firms are increasingly turning to advanced trading technology, working to understand its critical role in navigating the complexities and seizing the opportunities presented by this dynamic environment.
Unprecedented growth
The unprecedented growth has been fuelled, in part, by the increasing number of domestic investors. As the country’s middle class expands, against the backdrop of sustained, robust economic growth, interest in investments and in particular equities, has expanded with more individuals seeking to participate in the market. Traditionally, external investors have also been attracted to the Indian equities market for these very reasons – robust economic growth, demographic advantage, and an emerging middle class. More recently that has led Wall Street investors like Goldman Sachs and Morgan Stanley pulling out of China’s economy and into India.
As internal demand has blossomed, domestic efforts to attract international investment have grown too. For example, the Gujarat International Finance Tec-City (GIFT City) was established as an International Financial Services Centre to provide a favourable regulatory framework for financial services as well as boasting state-of-the-art financial infrastructure, global connections and branches of the National Stock Exchange of India (NSE) and Bombay Stock Exchange (BSE). This and similar initiatives by the Indian government are clear case studies for the drive to make the country an attractive gateway for foreign investors seeking exposure to India’s stock market.
Fuelling growth with technology
But this increased interest is putting a strain on the technological systems that underpin the market. For new investors, a lack of interoperability between global trading systems may compound the existing challenges of navigating a unique regulatory environment.
A crucial factor to ensure that foreign investors can participate in India’s equities market is the technology that broker firms so heavily rely on. The surge in demand is pushing firms to re-evaluate their current trading infrastructure and scrutinise their ability to adapt to the complexities of a globalised equities market. For international firms trading into India and local firms trading internationally in particular, it is no longer feasible to have separate systems for domestic and international business, which can cause logistical headaches, operational inefficiencies and unnecessary inaccuracies.
Likewise, existing algo trading solutions are often separate applications from the core trading platform. Such solutions can be difficult to scale up as volumes increase. There is a desire from broker firms for common algo functionality that delivers reliable performance and regulatory compliance. In order to stay competitive and keep up with the market’s growth, both domestic and international firms should work towards a technology strategy that prioritises having one integrated system that is able to deliver the full range of trading functionality. More efficient, streamlined and interoperable technology will help to ensure that anyone wanting to participate in India’s equities market can, sustaining interest in the opportunities presented by the dynamic environment.
Securing the future of India’s equities market
In this rapidly evolving landscape, the importance of keeping up to date with advancements in trading technology cannot be overstated. As the Indian equities market continues to attract both domestic and international interest, broker firms can get ahead by embracing, integrated feature-rich platforms that can deliver algo workflows and FIX connectivity as well as core trading functionality.
Looking ahead, the International Monetary Fund has projected that India is poised to overtake Japan and Germany to become the third largest economy in the world by 2027. What’s more, as global investors become increasingly optimistic, India’s stock market is predicted to surge to new highs by the end of June and gain nearly 9% in 2024. All eyes are on the region, with broker firms in India holding the key to unlocking the first door towards such impressive growth.
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