Red-hot rally: BSE firms' market capitalisation crosses Rs 200 trillion

India's market cap-to-GDP ratio is now over 100%

The sum of the market value of BSE-listed companies crossed Rs 200 trillion for the first time, on Thursday. The feat comes a day after the S&P BSE Sensex closed above the coveted 50,000-mark.

The Sensex, on Thursday, ended at 50,614.29, up 358.54 points.

The combined market capitalisation of the National Stock Exchange of India-listed companies was a shade lower at Rs 199.1 trillion, based on Thursday's closing.

The Nifty50 index ended the session at 14,895.65, up 105.70 points.

In dollar terms, the market cap figure of BSE-listed firms is $2.75 trillion -- the seventh highest globally. The country’s market cap-to-GDP ratio is now more than 100 per cent. Its nominal GDP (revised estimate for FY21) at current prices is around Rs 195 trillion.

The combined market cap of BSE-listed companies had topped the Rs 100 trillion-mark in December 2014. Back then, the market cap-to-GDP ratio was at 80 per cent.  In September 2007, when the market cap crossed Rs 50 trillion, the ratio was similar to the current level. The markets had come off more than 50 per cent in the following year due to the global financial crisis.

In less the one year, India’s market cap (based on BSE-listed companies) has nearly doubled. At the peak of the coronavirus-induced sell-off in March 2020, the market cap had plunged to Rs 102 trillion.

Based on BSE-listed firms, India’s market cap had crossed Rs 10 trillion at the turn of the century. Today, the country has two companies that are valued at more than Rs 10 trillion each. Since 2000, India’s market cap has grown at an annualised rate of 15 per cent.

India’s share in global market cap is about 2.5 per cent, similar to developed world economies, such as France, Canada, and Germany.

However, most of these markets quote at a much lower price-to-earnings (P/E) than India.

The benchmark Sensex currently quotes at a trailing 12-month P/E of highest-ever 34 times. Analysts say valuations look optically high as earnings over the past one year have been depressed due to the Covid-19 pandemic.

Even on a two-year forward basis, the benchmark indices quote at 22 times, much higher than the long-term average of about 16 times.

The consensus analysts estimate for corporate earnings growth for the next two years is 70 per cent. The estimate was drawn before the Union Budget presented on Monday. The growth-focused Budget has raised hopes that companies will be able to achieve these lofty expectations.

The markets have posted four straight days of gains this week, rallying 9.4 per cent.