India's m-cap touches new high amid sharp rally in broader markets

Combined market value of BSE-listed firms hits Rs 291.9 trillion before settling lower

The sharp rally in the broader markets has propelled India’s market capitalisation (m-cap) to a new high. The combined m-cap of all BSE-listed firms rose to Rs 291.9 trillion in intraday trade on Thursday before settling lower at Rs 290.9 trillion. The previous record was on December 14, 2022, at Rs 291.3 trillion.

From this year’s low of Rs 251.9 trillion, the m-cap of all BSE-listed companies has jumped Rs 39 trillion, or 15 per cent. Robust inflows from foreign portfolio investors (FPIs), a sharp upmove in small- and mid-cap stocks, and a recovery in Adani Group stocks have helped regain lost ground.

The new high comes despite the benchmark S&P BSE Sensex and the National Stock Exchange Nifty indices still ruling below their record highs made on December 1, 2022. However, gauges for the performance of both small- and mid-cap stocks have recorded new highs this month.

In February, India’s global m-cap ranking had slipped to seventh place amid a Rs 12 trillion rout in Adani Group stocks. However, the domestic markets have once again reclaimed their place in the top five, with India’s m-cap going past $3.5 trillion.

After being net sellers for the first two months of the year, FPIs have turned into aggressive buyers. So far this calendar year, they have net buyers of Rs 42,383 crore. They bought shares worth Rs 13,124 crore in June.

Apart from moderating valuations initially attracting them to Indian equities, FPI buying has been driven by improved global risk sentiment, encouraging corporate results, and positive macroeconomic indicators.

Easing fears regarding a contagion due to the banking crisis in the developed world also lifted sentiment.

“FPI flows helped in the rise of indices, which, in turn, helped raise the morale of retail investors who typically invest in small- and mid-caps,” said Chokkalingam G, founder, Equinomics Research & Advisory.

Unlike last year, there have been no major listings in 2023. As a result, the gains in m-cap have been driven by the expansion in stock prices of existing companies. The BSE MidCap Index rose by 11.1 per cent and the SmallCap Index by 10.8 per cent year-to-date. Also, new-age companies like Paytm and Zomato have posted sharp gains this year.

“When you have a move in the large-caps, the interest shifts to small- and mid-caps because investors are looking for value elsewhere,” said Ambareesh Baliga, an independent equity analyst.

In 2022, new listings such as Life Insurance Corporation of India, Adani Wilmar, and Delhivery helped boost m-cap.

In June, the combined m-cap of Adani Group stocks rose by Rs 1.3 trillion to Rs 10.5 trillion. However, the group’s m-cap is still down nearly Rs 9 trillion since the release of the Hindenburg Research report on January 24.

At current m-cap levels, some believe India’s valuations are fully priced in, and there is little room for disappointment. Experts don’t rule out a retreat in the markets because of delayed monsoons and cuts in earnings forecasts.

“We should see a consolidation now because the markets have moved up a lot, and a bit of froth is also getting built up,” said Baliga.

Earlier this month, Morgan Stanley maintained an ‘equal weight’ (EW) stance on India. In its Asia Emerging Market Equity Mid-Year Outlook report, the US-based brokerage has said, “We see the multipolar world transition as a tailwind for India and Indonesia, but retain EW recommendations, given high valuations, focusing instead on financials and single-stock beneficiaries.”