India's m-cap hits $2.5 trillion after soaring 91% from March 2020 lows

The market capitalisation of all listed companies in the domestic market on Wednesday touc­hed $2.5 trillion. The feat comes after a staggering 20 per cent ($440 billion) surge in market value since November, amid record inflows from overseas investors. 

On March 23, when the market had hit a nadir, the market cap had plunged to $1.3 trillion. Since then, India’s market cap in dollar terms has increased 91 per cent.

Earlier this week, the world market cap crossed the coveted $100-trillion milestone. It had slipped below $62 trillion in March amid widespread selling triggered by the Covid-19 pandemic.

The pace of growth in India’s market cap has been much sharper compared to global market cap in the past eight months.

In rupee terms, India’s market cap is currently about Rs 184 trillion — 90 per cent of the GDP of Rs 203 trillion for FY20 at current prices. The country’s market cap-to-GDP ratio currently is above its long-term average of 75 per cent. Also, valuations are expensive when looked at from a price-to-earnings multiple basis. The benchmark Nifty currently trades at 25x its estimated 12-month forward earnings, compared to the long-term average of 17x.

Money managers, however, are not too worried about expensive valuations at this juncture, as they are forecasting corporate earnings and GDP growth to accelerate over the next couple of years.

“In FY22, we are estimating 40 per cent-plus growth across our coverage universe due to a low base effect. And in the subsequent year, we are expecting 22 per cent earnings growth. We project a Nifty target for December 2021 at 14,500. At that level, the index will trade at 20x its FY23 earnings estimate,” said Amit Khurana, head of equities at Dolat Capital.

Vinay Paharia, chief investment officer, Union Asset Management Company, said: “The markets are trading at a small premium to their current fair value. This value is likely to compound strongly, driven by economic growth. We remain optimistic about investing in equities, with a medium-to-long-term time horizon.” Currently, India is the eighth biggest market in terms of market cap, behind Canada ($2.6 trillion) and France ($2.9 trillion). On a year-to-date, basis India’s market cap is up 13 per cent. US and China — the world’s two biggest markets — have seen their market cap soar 21 per cent and 45 per cent, so far, this year to $41.6 trillion and $10.6 trillion, respectively.