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The Bombay Stock Exchange (BSE) listed firms shrugged concerns on uncertainty and hit the historic $3-trillion market cap this week. This is despite the economy still reeling under the effects of the Covid-19 pandemic. The surge has come in spite of foreign institutional investors turning net sellers in the month so far. In fact, India has surpassed Germany to join the likes of the UK, France and Canada to enter the $3 trillion m-cap club.

Ashishkumar Chauhan, MD & CEO, Bombay Stock Exchange in an exclusive interview to Money9 shares insights on what really helped India achieve this feat. Edited excerpts.

Which key factors have contributed to BSE firms crossing the $3 trillion-mark?

In a way, what happens in BSE is actually a reflection of what is happening in the larger society and specifically in the corporate sector. If you look back over 19-20 years, on March 31, 2002, we had a market cap of $125 billion. Today we have a market capitalisation that is 24 times the same, which indicates a growth of 19% CAGR. Market capitalisation has two aspects. One is the reflection of growth in the economy or the company’s market cap and the other is of the new companies getting listed. With the 19% CAGR growth- around 6% is due to the new companies getting listed and the rest 13% is due to growth of the companies already listed.

What has led to the doubling of market cap from $1.5 trillion to $3 trillion at a much faster pace?

Markets are governed by both domestic and external factors. Up to 2007, the journey to $1 trillion was in tandem with what was happening around the world. The financial crisis then led to a sharp market fall. Markets picked up gradually post that and reached $2 trillion in 2014. From $2.5 trillion to $3 trillion it took less than six months, in just 159 days. Another phenomenon is the larger base of investors now which has led to this. One also needs to know that any country which becomes more developed and has more companies growing, has more financial edge which leads to higher market cap. We are the only country in the world in the developing market space which has such kind of investor base of (6.9 crore), a growing number of companies, and market capitalisation.

When do we see BSE hitting the $5 trillion-mark and which sectors will help achieve that?

While the $2 trillion jump may look huge, it is 60% more than the current market cap. Taking into account that if India were to grow at 7.5% growth rate which it has been in the past, or even add to it the 2.5% US inflation rate, then India may grow at 10% notional growth in dollar terms, then we will reach $5 trillion in five years on basic arithmetic. This is not unachievable or imaginary numbers, it is very much doable. New-age companies are going to  come to the market like Zomato and we also have LIC which is going to launch the IPO as well and many more. New companies will add more value and they do that at a much faster pace. We just have one IT-enabled business listed, these companies can scale up fast and are waiting to kickstart into exchanges. Pharma companies also will help drive growth for markets as the world is now looking at India as a pharma/vaccines hub. Solar energy in India will also be a driving space. Drones, robotics, holographs and companies in that space will create huge value. Indian companies have a huge potential to grow in these spaces but whether we can get these companies to list on Indian exchanges and create value for retail investors is something we will have to see.

How do you see retail participation growing as we move to now achieve the $5 trillion m-cap?

When you look back at last year when Covid hit us, BSE had about 4.5 crore investors. In just over a year we have about 7 crore investors in all, indicating we added 30-40% investors almost every month. We have not seen this growth rate in the last 25 years. So many countries in the world don’t even have a population of 70 million. Switzerland, New Zealand, Singapore have a population that is much less. BSE’s entire investor base is double the population of Australia. The numbers which India brings into stock markets are enormous. About 5% of India’s population invests in stock markets and this is only a beginning.

Watch the entire conversation here: