The Indian market has once again topped the $2-trillion market capitalisation (m-cap) threshold as shares in the broader market joined the party. The country’s m-cap slipped below the psychological level in March ahead of the sharp sell-off triggered by the pandemic.
During the depth of the correction, the combined m-cap of all listed stocks had slipped to multi-year lows of $1.3 trillion on March 23. Since then, India has added nearly $700 billion in market value thanks to the liquidity-fueled global rally.
At its peak, India’s m-cap stood at $2.22 billion at the start of the year, when the benchmark Sensex and the Nifty indices hit all-time highs.
World m-cap has seen a sharper rebound than India. The combined global m-cap, which had dropped to $61.6 trillion at the end of March, now stands at $88 trillion, only 1.2 per cent shy of a new record. India, meanwhile, is still about 10 per cent below its peak m-cap. The jump in world m-cap has been led by gains in the US and China. Big technology stocks (Facebook, Amazon, Apple, Netflix and Alphabet’s Google) have been at the forefront of this.
At present, on a year-to-date basis, China is up 29 per cent with m-cap of $9.4 trillion, while the US commands m-cap of $36 trillion, or about 40 per cent of world m-cap.
India’s share in the world m-cap has slipped to 2.27 per cent, down from 2.6 per cent a year ago. The share, however, has improved from May, when it dropped to 2.05 per cent. This was because India lagged world markets in the initial rally. Among the top 10 biggest markets, India is third-worst performer this year, behind France and the UK, in terms of m-cap change this year.
While regaining the $2 trillion m-cap would bring cheer to many, it makes the domestic markets look pricey on the m-cap-to-GDP metric. After slipping to below 55 per cent, metric is nearing 80 per cent (based on FY21 GDP estimates). The long-term average ratio for India is 75 per cent. However, experts believe the current reading isn’t a concern.
Saurabh Mukherjea, founder and chief investment officer of Marcellus Investment Managers says, “Like price-to-earnings multiple, m-cap-to-GDP is a mean reverting ratio. It fell so much in March it was inevitable that it would rise. During the height of the 2007-08 bull market, it had touched 130 per cent. So, right now it is suggesting that the stock markets are sensibly valued as opposed to the notion that some bubble has built. There are one or two pockets of over exuberance. But, overall it is fairly valued and the m-cap-to-GDP ratio signals the same.”
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