India’s market cap swells to $2.5 trillion

India climbed two notches in 2020 to take the eighth spot among the world’s top stock markets as a blistering equities rally anchored by hopes of a quick economic recovery helped the country cross the $2.5 trillion market capitalization mark for the first time on 28 December.

The previous high was in January 2018 when market capitalization was at $2.47 trillion.

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Since the crash in March following a nationwide lockdown announced by the government, Indian stocks have added $1.23 trillion, almost doubling the aggregate market value. India’s market capitalization had fallen to $1.3 trillion on 23 March, the lowest since March 2016, according to Bloomberg data.

Investors are expecting a sharp economic recovery in 2021 and companies whose fortunes are tied to the revival are leading the stocks’ rally. Continued foreign inflows coupled with a pickup in earnings and the rollout of vaccines are expected to sustain the upward momentum.

“This year will be marked by hopes of an early rollout of the covid-19 vaccine, normalization of activities and unperturbed growth recovery. We expect the year to witness a strong recovery in both the economy and earnings,” said Jaideep Hansraj, managing director and chief executive of Kotak Securities.

Last year, the initial rally in large caps was followed by gains in mid- and small-cap stocks towards the end of the year. Much of the gains in mid- and small-caps have been led by an increase in participation from domestic retail and high-net-worth investors. The broad-based rally added several billion dollars in market capitalization.

In 2020, the Indian markets outperformed many other major markets. India’s market capitalization gains were about 17.4%, one of the highest globally after China’s 48.5%, the US (24%) and Hong Kong (18%).

At the close of trading on Friday, the US had a market cap of $42.78 trillion, and China had $10.9 trillion. India increased its market capitalization from $2.14 at the beginning of 2020.

While the US and China have increased their share of the world’s market value in 2020, all the other eight in the top 10 have ceded shares.

From 39.5% at the start of the year, the US now has a share of over 41.4% to lead the global market cap table. China, with an increase to 10.55% from 8.4% at the start of last year, is the second most valued. However, India’s market share was little-changed. It is currently at 2.45%, down marginally from 2.47% in January last year.

This year may be challenging given the high valuations. “In 2021, abundant liquidity, low-interest rates and continuing capital flows are likely to support markets. And since valuations are at record highs, markets are vulnerable to corrections.,” said V.K. Vijaykumar, chief investment strategist, Geojit Financial Services.