 "Photo: Bloomberg")
Indian stock markets' m-cap hits $5 trillion: The market capitalisation (market-cap or m-cap) of all the companies listed on the BSE was holding the $5-trillion mark on Wednesday, May 22, a day after achieving the feat for the first time.
At 10:50 AM, m-cap of all the BSE-listed firms stood at $4.99 trillion, or Rs 415.6 trillion. Over the past one year, m-cap of all the BSE listed companies has surged by Rs 135 trillion, or 49 per cent, from a level of Rs 278.79 trillion seen on May 22, 2023.
That apart, the last $1 trillion in market value has been added in under six months.
On the bourses, the S&P BSE Sensex has zoomed 20 per cent over the past one year, while the Nifty50 has gained 23.7 per cent. In the broader markets, the Nifty MidCap 100 has soared 60 per cent in one year, and the Nifty SmallCap 100 has jumped 71.2 per cent.
"The market cap of the BSE-listed companies jumped from $4 trillion to $5 trillion in a short period despite events, such as the Lok Sabha election and the Fed pivot. This journey is front-ended through the expansion of valuations, followed by earnings," Nilesh Shah, MD, Kotak Mahindra AMC told Business Standard. READ MORE
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So, what are the reasons behind the rise in BSE m-cap? Here's a low down:
Economic reforms: The biggest factor driving the rally in the Indian equity markets are the reforms that the ruling Bharatiya Janata Party (BJP) have introduced during its 10-year tenure.
From Goods and Services Tax (GST) to Jan Dhan Scheme to PM Awas Yojana, PM Arogya Yojana, Ujjawala Scheme, PLI-push, Make in India, and PM Garib Kalyan Yojana.
"The rising m-cap of BSE listed companies is a reflection of how investors perceive India's economic growth over the next 5 years or so. From GST to direct tax collection, data shows India's economy remains stable and on path for further growth, said Narendra Solanki, head of fundamental research, Anand Rathi Shares and Stock Brokers.
Political stability: Secondly, hopes of the incumbent BJP winning the 2024 Lok Sabha elections irrespective of the number of seats, has infused confidence among investors of political stability in the country.
"Indian markets are the only markets, among emerging and/or developing markets, where investors expect political stability. Notwithstanding the concerns around voter turnout during the ongoing elections, it is widely believed that the ruling party may return to power, ensuring continuity of economic reforms," said Sanjeev Hota, head of research, Sharekhan by BNP Paribas.
According to channel checks done by Antique Stock Broking, the drop in voter turnout may have a minimal impact on BJP-held seats as the drop in turnout is mainly seen in seats where it had won with very high winning margin (over 20 per cent) in 2019
Besides, Congress might get impacted as lower voter turnout is higher in Congress-held seats where the winning margin was less than 5 per cent in 2019.
Earnings growth: According to Sanjeev Hota of Sharekhan, corporate earnings growth may remain healthy at 14-15 per cent over the next two-three year, supporting India's valuations.
Meanwhile, an analysis of the 28 Nifty companies, which declared Q4FY24 results till early May, showed that the earnings grew 13 per cent vs expectations of 8 per cent, a report by Motilal Oswal Financial Services said.
"The aggregate earnings of the 94 MOFSL Universe companies for Q4FY24 were in-line with our estimates and grew 5 per cent YoY (vs our estimate of 3 per cent YoY growth). The earnings growth was fueled by the domestic cyclicals, such as BFSI and Auto. We remain bullish on domestic plays and are 'overweight' on Financials, Consumption, Industrials, and Real Estate," the brokerage said.
DII support: Strong growth prospects and continued economic reforms, according to Deepak Jasani, head of retail research at HDFC Securities, have supported inflows by domestic institutional investors (DIIs). This, he said, has countered FII selling and supported the market rally.
So far in the month of May, DIIs have pumped in Rs 37,369.15 crore in the Indian stock market, as against a net outflow of Rs 37,499.96 crore by FIIs.
Since May 2023, DIIs have pumped in Rs 2.86 trillion in Indian equities. They were net sellers (on a monthly basis) for only two months -- May 2023 and July 2023.
On the contrary, FIIs have sold equities worth Rs 93,297.5 crore over the past one year, data shows.
On the contrary, FIIs have sold equities worth Rs 93,297.5 crore over the past one year, data shows.
Investment Strategy
Going ahead, Sanjeev Hota of Sharekhan suggests investors trim their exposure in small-cap stocks, and move to the safety of large-caps.
Narendra Solanki of Anand Rathi, meanwhile, says investors may use the current volatility to add quality stocks (across m-caps) on dips.
