May 18, 2017,
The capitalisation of the Indian stock market (M-cap) crossed $2 trillion this week, making it the 2nd largest emerging market after China. According to data released by Bloomberg, the Indian equity market is now the 9th largest in the world. Increasing infuse of funds from both domestic and foreign investors helped the Indian stock market achieve this milestone.
The strong performance of the stock market has piloted M-cap-to-GDP ratio of the country to a new high. This ratio is utilized in assessing the relative market valuation by stock market strategies and experts. Currently, the M-cap-to-GDP ratio is at a 10-year high of 0.88 making the Indian stock market one of the most expensive in the world.
This is not the first time that the M-cap of the Indian equities market touched $2 trillion as it also happened back in 2008. However, it could not be sustained due to global economic meltdown. However, market experts are of the opinion that this time the M-cap is sustainable as there is forecast of any large-scale market corrections.
Anand Rathi, the chief economist at brokerage firm Anand Rathi, spoke to the Economic Times about the significance of the high M-cap-to-GDP ratio in India.
“The relatively high M-cap-to-GDP ratio in India, is reflective of strong appetite of Indian entrepreneurs to access public equity funding and the willingness of Indian equity investors to fund such entrepreneurs.”
Market experts also believe that the M-cap-to-GDP ratio in India can even reach a high of 1.1 to 1.2 as the ratio can be boosted by government and private caps along with the possibility that there can be rating upgrade towards the end of 2017.