It takes corporate earnings, not crowds, to sustain a stock market boom

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Subscribe to enjoy similar stories. The Indian stock market has been in the global spotlight for what The Economist has called the “largest-ever experiment in participatory capitalism." As share indices hit one peak after another over the past five years, attracting retail interest, India’s investor base has grown explosively. Of the country’s 176 million plus ‘demat’ accounts for equity holdings, a vast majority were opened only in the past five years.

Likewise, a large chunk of the 101.2 million mutual fund accounts linked with Systematic Investment Plans, which draw monthly money into shares from households, are also relatively recent. Today, about a fifth of all Indian homes are reckoned to own company shares (directly or indirectly), a figure placed at 7% half a decade ago. The country has also been a global outlier on new listings.

With just 3% of the world’s GDP, it held 30% of all initial public offerings (IPOs) and raised 12% of the globe’s IPO money in the first three quarters of 2024. Our primary market has been action-packed, as the data shows, but it pales in contrast with the frenzy seen in equity derivatives, where trading volumes have been beating advanced-economy levels and inviting regulatory curbs. Indian participation in capital markets has been on a roll, clearly, a surge we can call phenomenal to the extent it reflects a mass awakening to the promise of equity ownership.

How long can we expect this boom to last? One temptation is to see it as the start of a self-driven expansion that may still have a long way to go. In a market supported by newcomers, if prices keep rising—a trend defied only by a slump since late September—it would attract even more new investors. The retail upsurge has already led