In 2017, India’s share of global market capitalisation (market cap or m-cap) went up after staying relatively flat over the last three years. The spike came on the back of a stellar showing by the Indian stock market, with certain key indices hitting new highs.
As a result, India’s share of world market capitalisation went up by 57 basis points (bps) from a year ago. It now stood at 2.93%. This also diminished the gap with share of gross domestic product (GDP) to the least it has been in five years.
The surge in domestic liquidity post demonetisation was considered to be among the key driving factors that led to an uptick in the performance of the Indian share market.With fixed deposits offering lowered interest rates, and other asset classes such as gold and real estate performing poorly, there was anaccelerated shift to financial savings. Even fund-raising through initial public offers (IPOs) saw a surge, with more and more companies being listed on the Indian stock exchange.
All these factors helped consolidate a push to market capitalisation as well. However, despite the increase, the country’s share in world market capitalisation still remains near its long-term average of around 2.5%.
To give you some context, India’s share in the world market cap went past the 3% mark for the first time during the stock market boom of 2007-08. After peaking at 3.3% in 2010, right after the markets recovered from a financial crisis, the share dropped to a low of 1.6% in 2013, following the global stock market slump.
With the stock markets performing exceedingly well over the last year, India’s m-cap in 2017 has surged 22% and surpassed the $2 trillion mark. In fact, it is the second highest increase in terms of percentage (after Brazil) among key stock markets across the globe.Amongst other markets, China’s m-cap grew steadily by about 20%, followed by the US, which grew by 15%.
However, even with the Indian share market todaysoaring ahead, the indicator on GDP growth reads a bit differently. Even though India’s contribution to world GDP has been on the rise since 2014, its improvement from a year ago has been a mere 8 bps.
With the advent of the Goods and ServicesTax (GST) soon after demonetisation, the country’s overall business confidence and growth was further hampered. To make matters worse, other key performing markets were growing at a better pace than India.
So, even though India’s m-cap has gone up, overall valuations still remain expensive in the absence of a steady recovery in entity earnings. And if these earnings don’t show any signs of gaining ground in the upcoming quarters, the valuations may continue to stay under pressure.