Mumbai: India is no longer part of the world’s top 10 equity markets in terms of market capitalization, with an at least 40% value erosion of stocks traded on the two main local bourses, the Bombay Stock Exchange and the National Stock Exchange.
India is down four spots, from eighth at the end of 2007 to 12th in August, an indication that the country’s stock market has suffered more than those of other countries in the wake of a credit crunch that started in the US and spread, through western Europe, to markets across Asia.
See: Bigger pie
Between December and August, the country’s share of the global market capitalization has dropped from 2.98% to 2.24%.
India, however, is not the only loser among the so-called Bric (Brazil, Russia, India and China) countries. In fact, China’s share of global market capitalization has dropped even more sharply—from 7.33% to 4.79%. Russia, too, has seen its market share go down from 1.64% to 1.46%. Only Brazil has managed to increase its share in past eight months—from 2.28% to 2.58%.
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.
A Mint analysis of Bloomberg data as on 22 August on the world’s top 50 equity markets, based on the aggregate market capitalization, reveals Indian stocks experienced the sharpest rise in valuations across world markets between 2003, when the bull run started, and 2007, just before the global equity meltdown hit the country.
The bull run in India started in October 2002 when the country’s most tracked index, Sensex, was at 2,834 points. By the second week of January 2008, it rose to its lifetime high of 21,206.77. Since the beginning of 2008, Sensex has lost close to 30%. On Wednesday, it closed at 14,296.79, losing 185.43 points, or 1.28%, over its previous close.
Between December 2003 and December 2007, the aggregate market capitalization of Indian stocks went up from $280 billion to $1.8 trillion.
The share of Indian markets in the top 50 equity markets also increased sharply in this period, from less than 1% to close to 3%, even as equities rallied globally.
Over the past eight months, however, four countries—Canada, Brazil, Switzerland and Australia—have moved past India.
Analysts claim this is a temporary blip and say India’s equity market is poised to grow much faster than many other large markets.
Peter Fung, managing director of global equity derivatives at the Hong Kong branch of Deutsche Bank AG, said it is difficult to justify the slump in stock valuations in India and other Asian markets, which has been far more than that in Western markets that are home to the current financial crisis.
Some analysts say if Indian investors had opted for geographical diversification, they could have cut down losses in the current bear market.
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%.
According to Bloomberg data, only 10 markets in the Top 50 have managed to increase their market capitalization this year. The gainers include Nigeria and Romania.