Sustained investor interest will keep alive the buoyancy in stock market, which peaked to 14,724 points this month, helping India catch up with mature markets in terms of market capitalisation to gross domestic product ratio.
The ongoing financial and regulatory reforms for the capital market, together with accelerated economic growth and macroeconomic stability, sustained the investors' confidence in the country's capital market, said the Economic Survey tabled in Parliament on Tuesday.
India with a market capitalisation of 91.5 per cent of GDP compared favourably not only with the emerging markets butalso with economies like Japan (96 per cent) and South Korea (94.1 per cent) and shows signs of catching up with some of the mature economies.
The market value of Indian stocks was second highest among all emerging markets, surpassing those of markets like Thailand, Malaysia, South Korea and Taiwan at the end of 2006. In comparison, China's market cap was just 33.3 per cent of GDP at the end of 2006.
"Improved investor awareness and expanding equity cult among the small savers appear to augur well for buoyant stock markets," the Survey said.
The expectations of higher corporate investment and earnings, robust GDP growth and government's commitment to carry forward economic reforms are also expected to scale up foreign institutional investors interest to retain India as one of the preferred destinations.
The investors' growing preference toward mutual fund route would further enhance institutional investment in equity markets, which along with regulatory support could cushion and counter-balance the impact of swings in the stock prices.
After scaling new peaks year after year since 2003, the benchmark 30-share index, Sensex, rallied from a low of 8,929 in June to an all-time high of 14,274 this month.
The journey from 13,000 to 14,000 mark that took just 26 trading sessions was one of the fastest ever 1,000-point rallies, the Survey said.