India’s Market Capitalization Crosses $5 Trillion Milestone

May 24, 2024

The market value of all companies traded on the Bombay Stock Exchange (BSE) in India recently passed the $5 trillion mark, which is a big deal for the market. India is now the fifth country in the world, after the U.S., China, Japan, and Hong Kong, to hit this level of market value. The value of the market was $5.05 trillion. The sharp rise in value is mostly due to the great performance of bank and car stocks, which pushed the benchmark indices to all-time highs.

Market-Cap to GDP Ratio

The Market Cap to GDP number, which is a key measure, went up to 1.42 times (or 142% of India’s GDP). This important economic sign, which is sometimes called the “Warren Buffet indicator,” helps figure out whether the stock market is overvalued or undervalued compared to the general output of the economy. According to the current percentage, the market may be stretched, but it also shows that the economy is doing well.

Historical Growth of Market Capitalisation

India’s market capitalization has grown in a very interesting way:

In May 2007, it hit $1 trillion for the first time.
In July 2017, it topped $2 trillion.
In May 2021, the $3 trillion mark was broken.
On November 29, 2018, it went over $4 trillion.
It is now over $5 trillion.

Economic Indicators and Forecast

Analysts say that the high Market-Cap to GDP ratio is due to strong macroeconomic fundamentals and a setting that is good for economic growth. Based on predictions for the next few years, the ratio may return to normal at 126% (1.26 times), which means that the market may continue to trade at higher valuations because the economy as a whole is doing well.

Market Valuation Parameters

The Market-Cap to GDP ratio has shown that a market is undervalued when it is between 50% and 75%, and it is at good value when it is between 75% and 100%. If the percentage goes above 100%, the market may be overvalued, but this depends on other factors. The fact that this ratio is currently above 100% shows how excited the market is and how private capital spending cycles might push it even higher shortly.