The equity portfolios of most Indian investors are loaded with local stocks. Even though regulations allow Indians to invest up to $200,000 in foreign assets annually, foreign stocks are yet to catch the fancy of local investors.
“Indians are now realizing that the index here cannot give them super returns forever,” said Pradeep Dokania, managing director and head of global private client group at DSP Merrill Lynch Ltd, the Indian arm of the US investment bank.
A capital markets report by consulting firm Grant Thornton India in August said India is among the world’s largest stock markets in terms of the number of listed companies. According to the report, at the end of 2007, there were 4,887 firms trading on the Bombay Stock Exchange and 1,353 on the National Stock Exchange.
However, the average market capitalization of India’s publicly traded companies is very low compared with other markets. As on 31 December 2007, the average market capitalization of BSE firms was $372 million.
During the same period, the average market capitalization of companies traded on London Stock Exchange, or LSE, was $864 million. The corresponding number for Japan’s Osaka Stock Exchange was $2.7 billion and New York Stock Exchange, or NYSE, $6.8 billion.
The number of listed firms in India continues to rise. In 2007, the country saw 105 initial public offerings, or IPOs, and in the first eight months of 2008, there have been 38 IPOs, raising around Rs19,000 crore from the primary market.
The top five markets in the world, based on their current market capitalization, are the US, Japan, the UK, China and France.
The US market, which is now worth $14.87 trillion, has been sitting pretty on top of the list for many years. It is about four times the size of the world’s second biggest market Japan, currently capitalized at $3.98 trillion. UK’s stocks are valued at $3.27 trillion.
The Chinese stock universe is valued at $2.28 trillion, and that of France, at around $1.9 trillion.
Other markets that rank above India include Hong Kong, Canada, Germany, Brazil, Australia and Switzerland.
The value of Hong Kong’s stocks add up to $1.88 trillion, that of Canada, $1.74 trillion, and Germany, $1.66 trillion. The markets of Brazil and Australia are worth a little above $1.2 trillion, while that of Switzerland is worth $1.1 trillion.
India, with a market capitalization of $1.07 trillion, is now the fifth most valuable market in Asia behind Japan, China, Hong Kong and Australia. It is still bigger than South Korea and Singapore, two key Asian markets.
It is also the third largest market in the Bric group.
Brazil’s market was capitalized at around $1.4 trillion in 2007 when the Indian market was worth at least $1.8 trillion. Since then, however, Brazil’s stocks have been riding a commodity boom and have suffered one-fourth the losses suffered by Indian stocks.
The Russian market, which was worth around $1 trillion, is now worth $0.7 trillion.
Among Bric markets this year, China’s stocks are down around 48%, India’s by at least 40%, Russia’s by 29% and Brazilian stocks, by around 11%.