India at 8th spot in m-cap rankings

At $2.26 trillion, its stock market is bigger than those of Canada and Switzerland, just behind Germany and France

India has pipped Canada to become the world’s eighth largest stock market by capitalisation. 

This year’s 47 per cent surge in market capitalisation has helped India seal its position in the $2-trillion club. It has also climbed two positions in the coveted league table.

At $2.26 trillion, the Indian stock market is now bigger than those of Canada and Switzerland. It is 5.3 per cent and 12 per cent behind Germany and France, respectively.

Indian equities were among the best performing stocks globally in 2017, with benchmark indices gaining 33 per cent in dollar terms. This outperformance helped India increase its share in global market capitalisation. 

India now accounts for 2.46 per cent of the worldwide market cap, up from 2.28 per cent at the beginning of the year. “India is the most attractive market for foreign investors. We have one of the fastest growing economies and one of the largest consumer bases. India’s global rank is expected to improve as the market switches to a high-growth trajectory on a strong reforms push by the government,” said Dharmesh Mehta, managing director, Axis Capital.

With improvements in macroeconomic indicators and a strong flow of funds from mutual funds, the current market buoyancy is expected to continue, according to analysts. 

Gross domestic product (GDP) growth had fallen to 5.7 per cent in April-June. Since then other economic indicators, including factory output, inflation and exports, have shown signs of a rebound. 

Experts said the slowdown was a one-time event on account of implementation of the goods and services tax (GST) and growth would revive in the next two quarters.

“A recovery in earnings is expected in the next couple of quarters. The bank recapitalisation announced by the government is expected to revive credit growth,” said UR Bhat, managing director, Dalton Capital Advisors.

Mutual funds are well placed to support market buoyancy. Mutual funds have made net share purchases of Rs 97,566 crore this year. Also, a sell-off by foreign portfolio investors has stalled as the economy and earnings show early signs of revival. 

For the first time in three months, foreign portfolio investors turned net buyers as they purchased equities worth $304 million last month. Foreign portfolio investors have invested $5.8 billion in Indian stocks so far this year. “The outflow was not on account of local factors but due to the reduced risk appetite of foreign funds for emerging market equities. India is still attracting impressive foreign direct investment flows,” Mehta added.

This rise of India’s market position will help the country to attract more foreign portfolio investment as its weight in various exchange traded funds will increase. However, the inflows are dependent on the free-float market capitalisation because passive funds use this as a benchmark for assigning weight. 

The free-float market cap of BSE 500 companies is around 46 per cent. Some markets smaller than India have higher weights in the emerging market indices because their free-float weight is greater. 

Free-float market cap is the proportion of shares readily available for trade. It excludes promoters’ holdings and locked-in shares.