India joins $2-trillion market-cap club; analysts see no bubble yet

Although markets had hit the $2 trillion mark in 2008 before, the levels could not be sustained

On Wednesday, Indian equities reached a new landmark — the market capitalisation of all the listed companies put together crossed the $2 trillion mark. With this, India has joined an elite club that consists of eight other markets. Indian market capitalisation clocked near $2 trillion mark once before, back in 2008. However, the levels could not be sustained as the markets corrected more than 40 per cent in the next one year due to the global meltdown.

Market participants say the 2017 rally is different from the one in 2008. They say that although there might be a minor correction in the near term, the rally is sustainable thanks to positive macro-economic indicators and a strong flow of funds from domestic institutions.

According to Andrew Holland, chief executive officer, Avendus Capital Alternate Strategies, Indian markets are in a sweet spot and the rally would continue unless there is any major global trigger.

"Things have changed a lot since the market rally in 2007-08. Today, we have strong domestic institutions to absorb any selling by foreign institutions. Indian capital markets are also looking very positive and we are seeing some good quality companies list," Holland said.

Experts also say that though there was certainly a bubble in Indian equities during 2007-08, current market levels look much more realistic.

"There is no bubble in the Indian markets right now. At best, it is being valued above average. The average PE (price-to-earnings) ratios are 16-17 times. Although these are slightly above normal levels, this is not two standard deviations above the average levels and can’t be called a bubble. In fact, other markets are more overvalued than India and, unlike those, we are at least seeing some positive developments happening in India," said Glen Baptist, chief executive officer and chief investment officer of US-based Pramerica International Investments.

However, the only concern for analysts at this point of time seems to be the revival in corporate earnings. Although earnings for the march quarter were better than street expectations, analysts say markets are at least two-three quarters away from witnessing an earnings revival.