India’s US $3 trillion market capitalisation makes for a compelling global allocation
The stock markets are as much a function of society as of citizens, as much an expression of the collective as of the individual, as much a signature of earnings as of speculations, and as much a paradox as an indicator. So, when you look at the market capitalisation—the combined market value of all listed companies—on the Bombay Stock Exchange (BSE) crossing the US $3 trillion mark for the first time on 24 May 2021, examine all these components while evaluating the event.
BSE CEO Ashish Chauhan captures the statistics: 69 million registered investors, 1,400 brokers, 69,000 mutual fund distributors and 4,700 companies have come together to converge around the INR 219 lakh crore number, he wrote. For context, India’s GDP (gross domestic product, defined as “the sum of gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products”) is estimated to be INR 196 lakh crore. The market capitalisation to GDP ratio, therefore, stands at 112 percent.
Growing steadily over the past 15 years, barring the 2010 jump to 97 percent, India’s market capitalisation to GDP ratio has fluctuated around the 70 percent mark. During this time, both the economy as well as the markets have grown steadily, at their own paces. At 112 percent today, this ratio is the highest ever. Against the world average of 129 percent, this number is lower than the US (222 percent), Canada (180 percent), South Korea (136 percent), Japan (133 percent) and the UK (131 percent). But it is higher than China’s 79 percent.
Growing steadily over the past 15 years, barring the 2010 jump to 97 percent, India’s market capitalisation to GDP ratio has fluctuated around the 70 percent mark. During this time, both the economy as well as the markets have grown steadily, at their own paces
Of course, all these markets have hit their highs over the past year. At 85 percent, the absolute (not adjusted for currency) 12-month returns from India are the world’s highest, followed by South Korea (81 percent), Canada (63 percent), the US (51 percent), the UK (48 percent) and Germany (46 percent). But you don’t assess or analyse a market based on such short-term movements. Over the past two decades, the market capitalisation of Indian markets has increased at a compounded annual growth rate of 18.2 percent.
This growth can be seen in several ways. First, the denominator—GDP growth. From the International Monetary Fund (IMF) and the World Bank, to other multilateral institutions and large private brokerages, India is among the fastest-growing (if not the fastest-growing), economies of the world. The IMF April 2021 World Economic Outlook forecasts that India will grow by 12.5 percent in 2021 and 6.9 percent in 2022—the highest among large economies. The Asian Development Bank April 2021 Outlook forecasts India’s growth rates at 11.0 percent in 2021 and 7.0 percent in 2022, again the highest among large economies. If the underlying growth is high, markets will follow. At the moment, the rise in markets is higher than that of the economy; hence, the market capitalisation to GDP ratio has crossed 100.
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