With sustained deregulatory measures, exposure to international financial markets and the introduction of new products and services, the Indian financial sector is charting an impressive growth path.

According to data available for August 2008, banking, financial services and insurance (BFSI) together accounted for 38 per cent of India's outsourcing industry (worth US$ 47.8 billion in 2007). And according to a report by McKinsey and NASSCOM, India has the potential to process 30 per cent of the banking transactions in the US by the year 2010. Outsourcing by the BFSI to India is expected to grow at an annual rate of 30–35 per cent.

The market is also expected to undergo a structural transformation with organised players increasing their market share. As a measure to ease the present liquidity situation and boost market volumes, the Securities and Exchange Board of India (SEBI) will be allowing cross margining norms to all the participants in the market. In a previous move in May 2008, SEBI had permitted institutional investors to avail this facility. According to SEBI, “In order to improve the efficiency of the use of the margin capital by market participants, it has now been decided to revise the existing facility of cross margining and to extend it across cash and derivatives segments to all categories of market participants.”

Notwithstanding the global economic slowdown, Venture capital (VC) investments are still growing in India with a considerable increase during the third quarter of 2008. With the entry of new funds, and bigger investments by existing players VC investments went up by 36 per cent to US$ 290 million for the period July-September 2008, according to research firm, Venture Intelligence.

According to a MasterCard survey, Mumbai lead the pack of strategically important commercial centres in emerging nations, ahead of Shanghai and Kuala Lumpur.

"In terms of financial services environment, Mumbai ranks one among all 65 cities covered by the index. It received the top score in the dimension of banking services and currency exchange regulations, and ranked highly on the volume of financial services traded,” said the report. In all, eight cities from India found a place in the list.

Furthermore, foreign pension funds are bullish on India, with over 40 such funds (endowments and university and family foundations) getting registered with the SEBI, during the last few months. One of the reasons for this was the simplification of regulations by SEBI.

Stock Markets

In January 2008, India had a market capitalisation in excess of US$ 1.9 trillion and over 200 companies with a market cap of over US$ 1 billion.

Fund raising by India Inc through IPOs rose by a whopping 62 per cent since the beginning of 2008 to 29 May, 2008 to US$ 4.2 billion, against US$ 2.6 billion during the same period in 2006, according to global deal data provider, Dealogic. Significantly, fund mobilisation during the first quarter of 2008 was the second highest for a quarter in the Indian capital's history.

In recent months, the Indian stock market has slowed down due to the global economic turmoil. However, expectations of it rebounding soon are also high.

According to a report published by the Confederation of Indian Industry and PricewaterhouseCoopers (PwC), in November 2008, most Indian companies believe that the slowdown in Indian markets is a transient phenomenon. Above 55 per cent of participants have witnessed growth in their bank finance requirements during the past few years and feel it will go up further over the next two years.

Further, according to global consultancy firm, Deloitte Haskins & Sells, the Indian economy and capital markets are expected to bounce back sooner than anticipated. The short-term outlook is far less gloomy in India compared to other markets, and the market is likely to witness a turnaround within six to nine months.