India became the ninth biggest market in the world as the stock market capitalisation crossed 2 trillion dollars because of persistent buying by both local and offshore investors. In terms of emerging market also India is at the second number after China.
The increase in stock prices has pushed up India's M-cap (market capitalization) to GDP ratio, a tool used by equity strategists to assess the relative valuation of the market above the 10 years average. Mostly for emerging markets, M-cap to GDP ratio is between 0.2 and 0.8 whereas for developed markets it is in a range of 0.5-2.2.
“Interestingly, nearly 50 per cent of the actively traded companies have market capitalization (M-cap) of less than Rs 500 crore. This shows that companies in India go public much earlier than in most other large economies. The relatively high ratio of M-cap to GDP in India is reflective of strong appetite of Indian entrepreneurs to access public equity funding and the willingness of Indian equity investors to fund such entrepreneurs," Sujan Hajra, chief economist at brokerage Anand Rathi said.
In 2007, the ratio had peaked at 1.48 for India. Since January, Indian stocks have generated 28 per cent returns in dollar term which is highest among the top 20 global markets based on M-cap.
"India can see more expansion in the M-cap to GDP ratio as private and government capex kicks in. The possibility of rating upgrade by the year-end could push up the ratio further. It can reach 1.1 to 1.2," said A Balasubramanian, CEO, Birla Sun Life Mutual Fund.
Contribution of India to global market capitalization has grown to a six year high of 2.7 per cent against a six year average of 2.2 per cent. It has doubled in the past three years. India's contribution to global GDP has also increased to 2.9 per cent, from 2.4 per cent in 2013.
May 23, 2017