Bluechips drive India past $5 trillion market capitalisation milestone

63% of mcap growth contributed by top 100 firms

Bluechips have propelled the domestic market from $4 trillion to $5 trillion.On an absolute basis, the top 100 companies have accounted for 63 per cent of the gains (Rs 51 trillion out of Rs 81 trillion), while firms beyond the top 100 have contributed 37 per cent (Rs 30 trillion). This contrasts with what happened during the market’s journey from $3 trillion to $4 trillion, when the market capitalisation (mcap) pooled in by the top 100 and those beyond 100 was almost equal in absolute terms.

Interestingly, in percentage terms, the growth in both top 100 and beyond 100 universes and also the overall mcap from $4 trillion to $5 trillion (in rupee terms) is similar at 25 per cent each. 

During the 55 per cent jump in mcap (in rupee terms) from $3 trillion to $5 trillion, the market value of the beyond 100 pack had almost doubled, while the top 100 had underperformed with just 41 per cent growth.

 

In the past six months, the outperformance of small- and medium-sized companies vis-à-vis largecaps has narrowed compared to the preceding 18 months. Market experts said this was on the back of the valuation safety provided by larger companies.

 

“Relative to the broader market, largecaps are their cheapest in a decade. The undervaluation of largecaps presents an opportunity, and Indian and overseas investors are trying to seize that. Getting moderate valuations in largecaps in a bull market is rare,” said Saurabh Mukherjea, founder and chief investment officer of Marcellus Investment Managers.
 

He said there were triggers for largecaps to regain their pre-eminence. “With election results around the corner and as the rate-cutting cycle kicks in, it will drive the largecap profitability further,” Mukherjea said.
 

Traditionally, the top 100 stocks have accounted for over two-thirds of India’s mcap. Their dominance has waned as their contribution now to the overall mcap is less than 64 per cent compared to over 70 per cent when the market first hit $1 trillion, $2 trillion, and $3 trillion.
 

“The largecaps have been playing catch post the close to 70-80 per cent rally in the small and microcaps in 2023. No wonder, the contribution from the top 100 stocks has gone up in the journey from $4 trillion to $5 trillion. Moreover, a lot of the leaders of the recent rally are heavyweights from the PSU pack, such as State Bank of India, Coal India, ONGC, BPCL, and HPCL, which are part of the top 100 universe,” said Gaurav Dua, SVP, head (capital market strategy), Sharekhan by BNP Paribas.
 

Experts said greater institutional flows coming into the market were also supportive of largecaps.
 

“Domestic institutional investors have been big participants in the latest market surge. A lot of flows have come into the market via exchange-traded funds. More investments are likely to gravitate towards largecaps in the near future, considering an event risk is coming up in a few weeks,” said U R Bhat, co-founder of Alphaniti Fintech. Even if markets don’t rally after election results, Bhat said, largecaps were a safer place than mid or smallcaps. “Retail investors, too, should refrain from making disproportionately high allocations to mid and smallcaps,” Bhat said.
 

(With inputs from Mayank Patwardhan)