A closer look between the Indian economy and market capitalisation shows that the country's market capitalisation to GDP ratio has reached a record level of 132.47% in financial year 2010-11 from 23.28% in 2002-03, says a report.
"Thanks to the sustainability of the market during the financial year 2010-11 and mega public issues such as Coal India, the market capitalisation to GDP ratio has reached a record level of 132.47%. That is, the market cap of the country today stands at 132% that of the country's GDP," SMC Global Securities said in a report.
Market capitalisation to GDP ratio is an indicator of the total listed wealth of a country as a percentage of its GDP.
During FY 2002-03, the market capitalisation to GDP ratio in India was as low as 23.28%, representing that the total listed wealth in the domestic capital markets was just 23.28% of the country's GDP.
But, by 2007-08, the ratio moved up to 109.47%, and here for the first time in Indian capital market history, the market cap of the country was more than that of the country's GDP.
"The reason for such substantial rise can be attributed to two major factors, first, more and more Indian companies started accessing the capital market through IPOs, secondly, there was a continuous rise in valuations in the capital market; thanks to the bull phase between 2002 and 2003 and between 2007 and 2008," SMC noted.
As more and more companies in a country get listed on the capital market, the percentage tends to move up, it added.
However, things turned sour after the unprecedented financial crisis and market meltdown during 2008-09, which saw the m-cap-to-GDP ratio crashing to 55.36%, it said.
But, a recovery in the capital market during 2009-10 brought back this ratio to 100.02% and during the financial year 2010-11, the market capitalisation to GDP ratio reached 132.47%.
The market capitalisation to GDP ratio helps understand whether a country is undervalued or overvalued. A higher ratio indicates that there is a sense of high valuation in the country.
The Indian economy is projected to grow by 8% in 2011-12.