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Photo: Mint

India swings back to $2 trillion market cap club, as equities recover losses

This week, FIIs have turned net buyers of Indian shares with an inflow of $2.33 billion in this year so far and a robust purchase of 3.61 billion in August alone

Riding on abundant foreign liquidity which fuelled a rally in equities, aggregate market cap of Indian stock markets have expanded to pre-covid levels while recovering losses made in March. Data showed that India’s stock market capitalisation is back to $2 trillion-mark for first time in nearly six months while benchmark indices have surged nearly 48% from the lows hit in March. India’s market cap was at $2 trillion last in February. India had first entered the $2 trillion market cap club of eight countries in May 2017.

Bloomberg data showed value of all shares traded, or aggregate market capitalization of India has climbed to $2 trillion level but is still 6.86% lower from $2.15 trillion seen in January. India's benchmark indices Sensex and Nifty are around 8% away from the record highs seen in January this year.

In January, India was ranked 10 with a market cap of $2.15 trillion, and was in the seventh spot while in January 2019, with an aggregate market cap of $2.08 trillion. India had tumbled out of the top 10 list on 23 March, when the benchmark indices saw one of the biggest one-day decline. India’s aggregate market cap on the day was at $1.31 trillion in dollar terms, and 101.87 trillion in rupee terms.

Currently at bottom position of the top 10 countries by market cap, India’s contribution to the aggregate market cap is still lower at 2.27% from 2.47% in beginning of the year.

According to Saurabh Mukherjea, Founder and Chief Investment Officer, Marcellus Investment Managers since Indian stock markets are still down 7% from where it was on 1 January, in that sense we haven’t yet rebounded to where we were before Covid. “Secondly, the developed countries have injected $12 trillion into the global financial system over the past six months. That has obviously boosted financial markets across the world," he said.

Foreign institutional investors (FIIs) have reversed their sell-off in Indian shares. This week, FIIs have turned net buyers of Indian shares with an inflow of $2.33 billion in this year so far and a robust purchase of 3.61 billion in August alone.

Mukherjea thinks that rally in the markets is not at risk as corporate earnings and economic activities have recovered far quicker than the gloomy outlook in March. “Even more importantly, the death rate from covid-19 has come down rapidly over the past four months. So the notion that the market rally is at risk does not seem grounded in the day to day ground reality of India. Stock markets do not look back, they look forward – typically they look forward 4 quarters or so. Hence what equity markets across the world are implicitly saying is that somewhere around the middle of 2021 the global economy will recover," he reiterated.

Share of both BSE Midcap in the overall market capitalization has decreased, while that of the BSE Smallcap and Sensex have grown from in this year. At current levels, the BSE MidCap index contributes 12.93% to India’s total market cap, down from 13.16% in January. In contrast, contribution of the Sensex to India’s total market cap has grown to 48.84% at current levels to 48.76%. BSE Smallcap contribution has increased to 14.31% from 13.27% in January.

“Currently, valuations are challenging, stock picking is the key, but beyond the top-heavyweight names,Nifty looks less expensive which opens the market up for participation in midcaps and smallcaps. Except for the BFSI sector, there is limited valuation comfort across sectors but the BFSI sector has balance sheet challenges. Nifty is currently trading at 18.7 times FY22 earnings," said Neeraj Chadawar, Head - Quantitative Equity Research, Axis Securities. He sees limited upside potential to the overall stock markets rally.

In this year so far world market cap has expanded 1.23% to $88.06 trillion mostly contributed by swell in China which has jumped 28.27% in 2020 so far. Topping the chart is the US which soared 4.61% in year-to-date with a current market cap of $35.96 trillion while China's market cap is $9.43 trillion.

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