India’s Market Cap Hits $3 Trillion

Introduction:

India’s market cap hits the $3 Trillion mark for the first time, on Monday, May 24, 2021, making it the 8th largest equity market in the world. India had first hit the $1-trillion market cap mark in May 2007. It managed to double the level in 10 years, in May 2017. While the latest $1 trillion has come at a relatively faster clip — in just 4 years (May 2021). Here is a 6 point analysis to get a better understanding of the journey of the market to $3 trillion:

1. Rally to $3 Trillion- India’s Market Cap Hits $3 Trillion Milestone:

• It comes 14 years after the Combined Value of Listed Companies in India crossed $1 Trillion for the first time on 28 May 2007. Then India achieved the $2 Trillion mark on 16 May 2017 and on 24 May 2021, the total market cap of the listed companies reached the mark of $3 Trillion.
• The Market Cap ($ trillion) of BSE-Listed Companies came up 2xsince the major crash in the economy in Mar-2020 when the market cap went down to $1.5 trillion.
• A major reason for the comeback is the Sharp Recovery in the Economy post-reopening of the businesses.
• Also, Indian Corporates posted Better-than-expected Earnings in Dec-20 & Mar-21 quarters.

2. Biggest Contributors to Last $1 Trillion:

• The biggest contributor to the last $1 trillion in the whole $3 trillion market cap is Reliance Industries, which contributed $104 billion that is over 10% of the total $1 trillion. Big thanks to Mr. Mukesh Ambani for inviting huge foreign investments in Reliance Jio and Reliance Retail.
• TCS also added $82 billion which sums up to around 8% of the overall contribution. HDFC Bank attracted $52 billion which is around 5% of the total contribution.
• Other major contributors in the last $1 trillion were: Infosys, Hindustan Unilever, Bajaj Finance, ICICI Bank, Adani Green Energy, HDFC Ltd., and Adani Transmission.

3. Indian Equity Market’s Global Ranking:

• India’s Equity Market is the 8^th Largest market in the world with a market cap of $3 trillion.
• The United States with a market cap of $47.5 trillion at the first position and China is at second position with a market cap of $11.4 trillion.
• Hong Kong at $7 trillion, Japan at $6.7 trillion, the UK at $3.7 trillion, France at $3.3 trillion, and Canada at $3.1 trillion, holds the 3^rd, 4^th, 5^th, 6^th, and 7^th rank respectively.
• Germany with a market cap of $2.8 trillion and Saudi Arabia with a cap of $2.6 trillion secures 9^th and 10^th rank respectively.

4. India – The Best Performing Market over the past 1 Year:

• If we consider the past one-year return in terms of percentage, India stands at 1^st position with a 1-year return of 85.4%.
• South Korea secures the 2^nd position with a 1-year return of 80.9% and a YTD return of 6.2%
• Canada with a 1-year return of 63.5% and Taiwan with a 1-year return of 63%, gets the 3^rd and 4^th position respectively.
• Whereas, Canada provides the highest Yield Till Date return of 20.7% and hence, gets the first position. Here, India comes second with a YTD of 16.1%.
• The average 1-year return of the world is 49.2% and the average YTD return stands at 9.3%.

5. Current Market Cap to GDP Ratio

(i) Current Market Cap to GDP Ratio of India:

• The Current Market Cap to GDP Ratio of India stands at 112% of the total Indian GDP.
• It can be seen that it peaked at 149% in December in 2007 during Global Financial Crisis and it has still not achieved that level.
• But if we look at the Historical Long-Term Average, it is at 75% which shows that the market cap is trading at around 37% premium and one should be careful before investing lump-sum in this time. One should invest in a staggered way in this situation.

(ii) India’s Market Cap Still Low Relative to Economy:

• The Average Market Cap to GDP Ratio of the world is currently at 129%, and India’s Market Cap is still Low Relative to other Economies of the world which signifies undervaluation.
• The Market Cap to GDP Ratio of Taiwan stands at 559% which is around 5 times higher than the Market Cap to GDP Ratio of India and it gives a clear indication of overvaluation.
• Saudi Arabia with a Market Cap to GDP Ratio of 324% and Switzerland a Market Cap to GDP Ratio of 304%, are at 2^nd and 3^rd position.

6. Key Opportunities & Risks Ahead:

a) Opportunities:

• Though India’s market has rallied sharply, Morgan Stanley sees more upside ahead.  According to Morgan Stanley by Dec 2021, Sensex will hit 55,000 in a Base-case scenario and 61,000 in a Bull-case scenario. This could take the market cap of India to $3.5 Trillion. In the FY22, the Indian Markets will rise by 30% and it will outperform Emerging Markets.
• The upcoming LIC IPO & Other Listing could add another $200 Billion to the equity market cap.
• The uptrend in Indian markets is intact and Rising Commodity Prices globally will help major Indian Corporates in the field of Oil & Gas, Metal, Cement, and Utilities sectors.

b) Risks:

• Valuation of the Indian Market looks stretched as Nifty crossed 15,200 levels. The market has already discounted economic recovery after the business started to re-open.
• Maybe we will not see any Price Correction but the market is posing the Risk of Time Correction looking ahead.
• The market is looking to momentum gain in Vaccination rollout.
• US Interest Rates remain a key concern for global equities as US Fed kept interest rates near Zero to induce liquidity but now to control inflation, the US may increase the interest rates once again. Mr. Powell said, “Risk to Outlook remains Intact”.