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India’s market capitalisation (mcap) hit the $5-trillion milestone on Tuesday, with the buoyant domestic markets adding $1 trillion in market value in under six months.
This makes India the fifth country/region to join the exclusive $5-trillion m-cap club, alongside the US, China, Japan and Hong Kong.
However, on a closing basis, India’s mcap, which represents the combined market value of all firms listed on the BSE, stood at $4.97 trillion (Rs 414.6 trillion). The National Stock Exchange (NSE), a larger exchange with fewer listed companies, reported a combined mcap of $4.93 trillion, or Rs 411 trillion.
India’s mcap has seen a surge of over 60 per cent — the highest among major markets — from its lows in March 2023, driven by a rally in shares of small- and mid-sized firms. This increase in market value is attributed to a re-rating of valuations amid improved economic and earnings growth prospects compared to most global and emerging market peers. “The mcap of the BSE-listed firms jumped from $4 trillion to $5 trillion in a short period despite events, such as the Lok Sabha polls and the Fed pivot. This journey is front-ended through the expansion of valuations, followed by earnings. India will have to deliver on 3G of growth, governance and green to meet elevated market expectations,” said Nilesh Shah, MD, Kotak Mahindra AMC.
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India’s market cap-to-GDP ratio (on a trailing 12-month GDP basis) is now at 154 per cent compared to 120 per cent in November 2023, when it first hit the $4 trillion mark.
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When India achieved the milestones of $500 million, $1 trillion, and $2 trillion market capitalisation, the mcap-to-GDP ratio was less than 100 per cent, which is considered fair value.
The market cap of India has been bolstered in recent years by mega newly listed companies. For example, the Life Insurance Corporation, which was listed two years ago, has a market cap of $78 billion. In addition to LIC, the market value of the entire public sector undertaking (PSU) pack has seen a significant increase over the past year. India now boasts 100 stocks with an m-cap above $10 billion, up from just 30 in the pre-Covid period. For comparison, China, whose m-cap is nearly double that of India, has just over 130 companies.
The growth in India's market value has enhanced its influence on the global stage and attracted higher inflows from foreign investors, particularly those investing via exchange traded funds (ETFs). India is now the second-largest market in the MSCI Emerging Markets Index, after China, with a weighting of nearly 19 per cent, up from just 8.2 per cent in 2018.
In the first three months of 2024, India-dedicated global funds have channelled over $8 billion into domestic stocks.
“The markets continue to reflect the strong fundamentals of our country. The government should carry out future reforms after the election results, supported by strong fundamentals of company and earnings,” said A Balasubramanian, managing director & CEO, Aditya Birla Sun Life AMC.
His views were echoed by Andrew Holland, CEO of Avendus Capital Alternate Strategies. He said: “The markets are a bit forward-looking. Therefore, this tells you that there is more optimism around the growth of the economy. The near-term outlook depends on what the upcoming Budget has in store for us regarding taxation and policy measures.”
