Mumbai: The Bombay Stock Exchange’s bellwether equity index, Sensex, has gained for six trading sessions in a row, the longest rising streak since April 2008, extending a rally that started on 9 March. In the past month, the index has risen 32.39%, making it the best performer among the world’s top 25 markets except Italy, but the so-called bear market rally has not helped India move up the pecking order in terms of market value.
Also See Share Of The Pie (Graphic)
According to Bloomberg data, India is down five places from its ranking of 8 in January 2008, at the height of the bull run, to 13 now, indicating that some other markets have recovered quicker after stimulus plans by central banks and governments worldwide kicked in.
India’s share of global market capitalization fell from 3.23% in January 2008 to 2% in December, after a global credit crunch, fuelled by the mid-September collapse of investment bank Lehman Brothers Holdings Inc., prompted foreign investors to flee to safer asset classes. The 30-stock Sensex fell 52% in 2008 after yielding annual returns of at least 46% each in 2006 and 2007.
At last Thursday’s market capitalization, India’s share of global market stood at 2.16%.
While equity markets the world over continued to dip in January and February, there has been a dramatic improvement since March on a stream of positive news flow such as increased home purchases in the US and more car sales locally. Some analysts have even started saying cautiously that the worst is behind the Indian markets.
Market capitalization is calculated by multiplying the number of outstanding shares of a company with its current market price. The aggregate market capitalization of a country is the sum of the individual market capitalization of listed stocks.
But India is not the only one, among the so-called Bric (Brazil, Russia, India, China) nations to lose its global market share. The share of China, the fastest growing economy in the world, dipped from nearly 8% in January 2008 to 7.8% now. Brazil’s share has been eroded by 11 basis points to 2.25%. One basis point is one-hundredth of a percentage point. Russia’s fall has been the most dramatic, with its market share almost halving to 0.91%.
US, Japan markets gain
The major gainers during this period have been the world’s two largest economies—US and Japan. The share of the US in market capitalization has increased from 28.8% in January 2008 to 32.18% in April and Japan’s share improved from 7.6% to 9.24%.
In the past one month, the Dow Jones Industrial Average of the US has gained 23.47% and Japan’s Nikkei 26.5%.
To be sure, the collective market capitalization of the top 50 equity markets in the world has fallen significantly since the heady days of January 2008. At the peak of the bull run, it was $57.8 trillion. The worst ever global credit crunch and the resulting flight of money from equities on sagging risk appetite have seen global market capitalization drop to $31.3 trillion, a 45.8% fall.
“Most of the developed markets hit significant lows,” after the credit crisis started, said Ramachandran Krishnan, head of investments and product office at Barclays Wealth, India. “From then it’s a sharp bounce.”
Indian equities had one of the best bull rallies among world markets before the credit crunch struck. Between late 2002-2003, when the bull run started, and 2007, Indian stocks posted the sharpest rise among world markets. In October 2002, the Sensex was at 2,834 points. It rose to its lifetime high of 21.206.77 in January 2008.
Accordingly, the aggregate market capitalization of Indian stocks rose from $280 billion in December 2003 to $1.8 trillion, or 1.8 times the country’s gross domestic products (GDP), in January 2008. Now, the market capitalization is $675 billion.
The share of Indian markets in the top 50 equity markers rose sharply during this period of January 2008 peak, from less than 1% to 3.23%.
Bad news discounted
Slumping industrial production and exports and a widening fiscal deficit notwithstanding, analysts and fund managers say Indian equities will do well this year.
According to a survey by the Indian Association of Investment Professionals (IAIP), a member-society of US-based Chartered Financial Analyst Institute (CFAI), 40% of the 530 analysts and fund mangers polled say the Sensex would be trading at between 10,000 and 12,500 by the end of March 2010.
About 29% of the respondents expect the benchmark index to trade between 12,500 and 15,000, with almost half of those surveyed saying equities are their asset class of choice for the current fiscal year.
Going by the sheer number of listed firms, India is the largest stock market in the world. There are at least 4,700 firms trading on the 133-year-old BSE, Asia’s oldest bourse, and at least 1,580 on the National Stock Exchange.
These lists are not getting longer as they did at the height of the bull run as many firms are either delaying or shelving their plans for initial public offering. At least 60 Indian companies have delayed initial share sales after filing their offer documents with the capital market regulator. Only 28 companies sold shares to the public in 2008, mopping up about Rs830 crore, after 105 firms had raised Rs40,000 crore in 2007.
The top five markets in the world, based on their current market capitalization, are the US, Japan, China, the UK and Hong Kong. The US is the leader by a fair margin with $10 trillion in market cap. The other markets that are ahead of India are France, Canada, Germany, Switzerland, Brazil and Australia, in that order.
Apart from the US and Japan, the other major countries that have increased their share among the top 50 markets are Hong Kong, Canada and Switzerland.
Graphics by Ahmed Raza Khan / Mint