Stock mkt may gallop to $5 tn in 2 months; economy in a slower 4 yrs

The biggest contributor to the all-India market cap increase is the 56-share BSE PSU index. (Photo: Mint)
The biggest contributor to the all-India market cap increase is the 56-share BSE PSU index. (Photo: Mint)

Summary

  • The stock market capitalization was $4.75 trillion as of 16 February, with the dollar-rupee at 83.02, as per BSE data.

Mumbai: The economy could hit the $5-trillion mark in the next four years , but the stock market value can soar to $5 trillion within the next two months , going by the roaring rally in state-owned enterprises and the likes of Reliance, Infosys, and TCS, according to market mavens.

The stock market capitalization was $4.75 trillion as of 16 February, with the dollar-rupee at 83.02, as per BSE data. That leaves a gap of just $250 billion to reach the $5 trillion mark. Going by the pace of the rally in the PSUs and the benchmark Sensex, this figure could be achieved in the next two months, said analysts.

 

Since the latest leg of the rally from 26 October, the market cap of over 5,300 companies listed on the stock exchange has grown from $3.73 trillion to $4.75 trillion as on date, BSE data shows. That’s a little over a trillion dollars ($1.02 trillion) in just over two and a half months.

The biggest contributor to the all-India market cap increase is the 56-share BSE PSU index, accounting for $290 billion of the $1 trillion rise since 26 October to date. The second-biggest contributor is the 30-share Sensex at $259 billion, followed by BSE Midcap 150 at $214 billion and BSE Smallcap 250 at $92 billion. These four contributed 85% to the surge in market cap.

“Another 5% rally in the Sensex and continuation of that in PSU banks, defence, railway and power stocks could drive the m-cap to the $5-trillion mark within two months, if we factor in chances of a pullback, which is possible with the markets near record highs," said Rajesh Palviya, senior VP at Axis Securities.

The latest leg of the rally has been driven by PSUs with the BSE PSU index jumping a whopping 59% from 11,876.85 on 26 October to 18,842.09 on 16 February. The BSE Sensex has rallied a comparatively modest 14.69% to 72,426.64 over the same period. The Midcap index has returned 27.3% to 13,593.2 and the Smallcap index by 25.7% to 6,068.4 over the same period.

The government capex push is leading to a re-rating in PSUs which are in an “asset replacement cost cycle" and witnessing “increased operational efficiency," said A. Balasubramanian, MD & CEO, Aditya Birla Sun Life AMC.

The asset replacement cycle measures the outlay a business has to pay to replace an old asset at current market price. PSUs rich in assets have been given a fillip by the government’s 10 trillion capex in FY24 and a budgeted 11.11 trillion capex in the next fiscal year.

“Some PSUs are known to generate low return on equity and distribute good dividends, but rising operational efficiency and richness in assets are leading to a PE re-rating by money managers as these capacities are being used in infra creation like ports, roads, highways, power, etc," he said.

Once these become self-sustaining, the capex outlay can be funnelled to, say, water resource management, renewables and the like, increasing the overall prospects of state-owned companies, added Balasubramanian, who expects the race to $5 -trillion m-cap to be driven by PSUs.

The PSU rally has been led by SBI, NTPC, Coal India , IOC and ONGC, which have accounted for 37% of the BSE PSU index’ rise from late October to 16 February. Similarly , Reliance Industries , Infy, TCS, SBI and ICICI Bank have contributed 54% of the Sensex’s move.

SBI hit a life high of 774.70 on 16 February while Reliance hit a life high of 2,968.4 a day earlier.

“The rise in m-cap to $5 trillion will be led by PSUs and is a vindication of 10 years of pragmatic bold reforms, resulting in an all round growth with participation of all the sectors on the bourses," said Nirmal Jain , founder of IIFL Group.

 

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