1. India is now the 8th largest market in terms of market cap
At $3 trillion market cap, India ranks the eighth most valuable in terms of value. If you look more closely, the ranking sweepstakes are actually open between the fifth and the ninth ranks. While Japan, China and the US are far ahead of the rest, there is not much to choose between the others. For example, UK market cap has only gone up in the recent rally. France was driven largely by luxury groups like LVMH on revenge buying expectations.
Canadian companies benefited from an unprecedented rally in commodities. In the top-10, Saudi Arabia may look out of place, but it is 80% dominated by Saudi Aramco. The moral of the story is that rankings between fifth and ninth are there for the taking and it could be anybody’s game depending on how each economy pans out in the next one year.
2. How each $500 billion got added in Indian markets?
In the stock markets we tend to take a very broad perspective or a narrow perspective. What is required is a granular perspective. For example, Indian markets touched $1 trillion market cap for the first time in May 2007 and it would be interesting to see the granular growth; $500 billion at a time.
|Milestones in market cap||Date of Milestone||Days required|
|Reached $1.0 trillion||28 May 2007|
|Reached $1.5 trillion||06 Jun 2014||2,566 days|
|Reached $2.0 trillion||10 Jul 2017||1,130 days|
|Reached $2.5 trillion||16 Dec 2020||1,255 days|
|Reached $3.0 trillion||24 May 2021||159 days|
The journey from $1 trillion to $1.5 trillion took 2,566 days. That was the period of tumult of sub-prime crisis and the European defaults. It took a full 7 years to just add $500 billion in market cap. In comparison, the move to $2 trillion and $2.5 trillion were much quicker. Both periods had to contend with crises. The move from $1.5 trillion to $2 trillion had to contend with demonetization and the Fed taper. Still, it made it in 1,130 days. The move from $2 trillion to $2.5 trillion happened in 1,255 days despite COVID crisis striking the world. In comparison, the last $500 billion got added in a short span of just 159 days.
There are two counter arguments. Firstly, the move to $3 trillion was uneventful, which is not entirely correct as there was COVID 2.0 to contend with. Secondly, there is the base effect that comes into play, which is a valid argument. However, an accretion of $500 billion in 159 days is surely something to celebrate.
3. Which companies helped add $1 trillion in 3 years?
If you leave out the COVID rustle, it is still incredible that Indian markets added $1 trillion in about 1,414 days. The question is; what were the stocks that triggered this story?
|Company Name||Market Cap Accretion Jul-17 to May-21 ($ billion)|
|Reliance Industries||$70 billion|
|Tata Consultancy Services||$74 billion|
|HDFC + HDFC Bank||$102 billion|
|Infosys + Hindustan Unilever||$60 billion|
|ICICI Bank + Bajaj Finance||$40 billion|
|Adani Group||$88 billion|
|HCLT + Wipro + Bharti Airtel||$55 billion|
The above seven set of stocks account for $500 billion in market cap accretion. Even if you add other large caps, there has still been a sizable contribution coming from mid-caps, small caps and IPO new listings. That is indicative of a truly broad-based rally in the last 3 years.
4. Does this mean Indian markets are now stretched?
Not exactly, if you look at the Buffett ratio. Warren Buffett takes the broad metrics of market / GDP ratio as the proxy to test if the stock market is heated up or not.
Despite the sharp rally and the market cap touching $3 trillion, the Buffett ratio is far from stretched. It is actually encouraging. India’s market cap to GDP ratio is not only lower than other leading markets in the world, but a good 2700 bps lower than the global average.
In the euphoria of $3 trillion, don’t get carried away by the Cassandras who caution you to sell and go out. Volatility will be there but, for a high growth story that India has always been, the Buffett Ratio for India is still very attractive. That is the message to remember as Indian markets scale $3 trillion in market cap.