Five more peaks to scale

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India has displaced France as the world’s sixth-biggest stock market. India’s market capitalisation now stands at $3.5 trillion as compared to France’s $3.4 trillion. India is now only behind the US which is the world’s most valued with a market cap of $51.3 trillion, followed by China ($12.42 trillion), Japan ($7.43 trillion), Hong Kong ($6.52 trillion) and the UK ($3.68 trillion). This surge comes at the back of a one-way bull run with virtually no correction in the last 18 months.

The rally has been led by strong earnings delivery, benign liquidity and historic retail investor participation. So, what does this increase in market capitalisation tell us and how significant is this ranking? Well, this means is that India is a fairly large economy and our stock markets are also growing larger. Both domestic and foreign investors are bullish on Indian markets and the revival in India’s economy. Market capitalisation is the market value of listed firms and typically moves in tandem with economic growth and many experts believe that controlled Covid cases and strong pick up in the vaccination drive, has led to a healthy pick-up in economic activities, thus reflecting in improving macro data points and positive earnings driving the momentum.

Indian markets have also added more retail investors in the last 18 months than in the past 30 years. These investors have been dominating the daily cash market trading volumes so far in the rally. However, there are increasing concerns amid the investor community now of an impending correction keeping in mind that markets look over-valued and ahead of fundamentals at these levels. Certain news reports suggest that India’s m-cap-to-GDP have pipped its previous record high of 150% hit in 2007-08 and has climbed to 172%. One must note that these valuations can flip, what matters more now is to know whether the companies are profitable, operations are productive, there is enough credit flow, reforms are aiding growth and leading to higher capex by companies. To justify these valuations, the earnings of companies will have to grow so that they can invest more in R&D and create more capacities, thereby leading to more employment.