Trade war, general elections and slowdown in economy rattle investors
India is the only one among the top 10 countries by m-cap that has not seen any growth in 2019
India’s total market capitalization, or the value of all shares traded, has eroded this month after equities went into a tailspin in May because of a slew of factors. Aggregate market cap in dollar terms fell 4.8%, losing $104.7 billion, since the beginning of May, showed Bloomberg data. Among the world’s biggest stock markets, China’s market cap has slipped 5.59%—the most in May so far.
However, in this year so far, China’s market capitalization has jumped 24.28%—the most among the top 10 countries. China’s market capitalization is at $6.68 trillion, much lower than the $31.17 trillion of market topper US.
Last week, India fell two notches to rank ninth in the table with a market capitalization of $2.08 trillion. Canada and Germany were at the seventh and eighth positions, respectively. India is the only one among the top 10 countries by market cap that has not seen any growth in 2019.
In dollar terms, India’s benchmark Sensex index fell 4.6% in this month so far and gained 3.38% in 2019 till date.
Meanwhile, the share of both BSE MidCap and BSE SmallCap indices in overall market capitalization has decreased, while the Sensex has grown since January. At current levels, the BSE MidCap index contributes 13.07% to India’s total market cap, down from 13.68% in January. In contrast, the contribution of the Sensex to the country’s total market capitalization has grown from 44.87% in January to 46.84% at current levels. The BSE MidCap and SmallCap indices lost 8.51% and 6.15%, respectively, in 2019.
Fear of an escalating trade war between the US and China, uncertainty over the general elections, muted quarterly earnings and slowdown in the economy have rattled investor sentiment, which has dragged stocks in the last few weeks, say analysts. Volatility in Indian markets has also spiked, as the Lok Sabha elections, crude oil prices and global geopolitical developments weighed on equities.
“Another reason for the markets falling now could be due to profit booking, as Indian equities had jumped considerably in the beginning of this year," said Harsha Upadhyaya, chief investment officer (equity) at Kotak Mahindra Asset Management Co. Ltd.
Upadhyaya thinks once the poll uncertainty is over on 23 May, markets will shift focus on other fundamental issues, such as crude oil prices, state of the economy and earnings. In 2019, crude oil prices have risen 34% but have cooled off this month.
“Election uncertainty has driven markets in the last year with cyclical segments witnessing a significant de-rating despite posting good results and order books. Elections impact returns in the short term, whereas earnings drive returns over the long term. With the election results getting out of the way in May, focus should shift to earnings growth visibility," said Anoop Bhaskar, head (equity), IDFC Asset Management Co. Ltd.
Foreign institutional investor (FII) flows continued to be positive in India, whereas domestic institutional investors (DIIs) are still cautious pending the election results. In this year so far, FIIs were net buyers of Indian shares worth $10,093.78 million, while DIIs have sold shares worth ₹13,368.4 crore