Domestic flows have surged. Narayan said ₹8.8 lakh crore, or nearly $100 billion, came into the capital markets in the fiscal year 2024-25 (FY25) through mutual funds, pension funds, insurance and direct retail participation. This offset ₹1.3 lakh crore of FPI outflows, resulting in ₹7.5 lakh crore of net equity demand, “an all-time high record.”
On the supply side, he pointed out that initial public offerings (IPOs), follow-on public offer (FPO), rights issues and Qualified Institutional Placements (QIPs) collectively reached ₹4.6 lakh crore, another record.
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While this demand is helping capital formation, Narayan highlighted a growing mismatch between demand for equities and the supply of new paper. The gap has widened from near balance five years ago to ₹2.9 lakh crore in 2024-25. This is encouraging promoters and foreign owners to sell at higher prices. “These are the ingredients of a seller’s market,” he said, adding that valuation pressures are visible in parts of the market.
Narayan argued that India must expand the range of investible asset classes available to households. He said, “We need commodities, we need fixed income, we need hybrids, we need InvITs, Real Estate Investment Trusts (REITs)” to support better asset allocation. He also advocated increasing the $7 billion cap on mutual fund overseas investments, saying that restricting outward flows creates distortions. “By restricting money from going outside, you’re making your markets inefficient,” he said.
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He added that the mutual fund (MF) route is safer than individuals using the Liberalised Remittance Scheme (LRS) route because MF units remain onshore and redemptions bring money back into the country. Allowing MFs to invest “maybe a billion dollars every month” abroad could ease pressure on domestic valuations while improving market efficiency, he said.
On regulatory scrutiny around high-frequency trading and the Securities and Exchange Board of India’s (SEBI) Jane Street investigation, Narayan declined to comment, saying enforcement work is institutional and matters under litigation cannot be discussed.
Narayan discussed derivatives regulations, saying SEBI’s approach will remain data-driven and consultative. He outlined three issues SEBI has been addressing: large losses among small option traders, disproportionately high expiry-day option volumes compared to the cash market, and India’s concentration in short-dated contracts. He said any future steps must consider market stability because exchanges and intermediaries depend heavily on derivatives revenue.
He also addressed concerns about rising margin-funded trading, which has grown from ₹7,000 crore to ₹1.15 lakh crore in a few months. He said the pace should be monitored but “the numbers by themselves are still small” relative to India’s ₹460 lakh crore market capitalisation and the banking system’s credit size. Regulators, he said, are “well seized of the issue.”
Narayan said India must continue strengthening the corporate bond market, arguing that the trading culture that exists in equities should extend to debt. He said a robust tax and settlement framework could help retail participation. “If we can trade complicated things like index options, there is no reason why we can’t trade corporate bonds,” he said.
For the full interview, watch the accompanying video
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