Indian stock market hits $5 trillion milestone ahead of election results

PTC News Desk: Tuesday saw a historic milestone for the Indian stock market as it soared to a market capitalization of $5 trillion for the first time ever.

The stock market resisted the FII pullout ahead of the Lok Sabha election results on June 4 by creating a wealth of $1 trillion in just six months, entering the elite $5 trillion club.

As investors continued to purchase stocks in the broader market, the aggregate market capitalization of all listed equities on the BSE on Tuesday increased to Rs 414.75 lakh crore ($5 trillion), even as the Nifty and Sensex were having difficulty finding direction after last week’s rise.

It took less than six months for Dalal Street to go from $4 trillion on November 29, 2023, to $5 trillion on May 21.

The Nifty is currently approximately 250 points below its peak, while the small- and mid-cap indices reached fresh highs on Tuesday.

Even though FIIs have taken out at least Rs 28,000 crore this month, domestic institutional, retail, and HNI investors are driving current leg of the bull run.

Among stock markets, India ranks fifth, with the US, Hong Kong, Japan, and China being the top four.

On May 28, 2007, India achieved a milestone of $1 trillion. The stock market needed an additional ten years to hit the next trillion. On May 16, 2017, the $2 trillion milestone was reached. The next one happened faster, as on May 24, 2021, the $3 trillion mark was reached in just four years.

Despite recent market volatility brought on by election-related rumors, investors have taken solace in remarks made by Amit Shah, the home minister, and Prime Minister Narendra Modi.

“You will see that market participants would get tired in one week within June 4, the day election results would be declared,” the prime minister said.

Amit Shah advised investors to buy the drop a few days earlier since the market would rise following the election results.

If market returns follow the previous 15–20 years’ pattern and there are fresh listings, India’s economy is predicted to grow to become the third largest by 2027, and its market capitalization is projected to reach $10 trillion by 2030.

Although many investors in emerging markets still favor India, the market’s growing size will make it difficult for larger investors to ignore it and will also provide ample liquidity for major participants.

Over the past few years, the number of Indian stocks with a $1 billion market size has nearly doubled to 500, reflecting the significant expansion in market depth in the country.

India is one of the main emerging market economies’ markets that has continuously produced annualised returns of more than 10% during the previous five, ten, fifteen, twenty, and thirty years.

India’s weighting in the MSCI Emerging Markets (EM) index is expected to rise from 18.3 per cent to over 19 per cent as of May 31, potentially attracting FII inflows of up to $2.5 billion.

“Over the next four years, India’s GDP will likely touch $5 trillion, making it the third-largest economy by 2027, overtaking Japan and Germany, being the fastest-growing large economy with the tailwinds of demographics (consistent labour supply), improving institutional strength, and improvement in governance,” stated Jefferies.

Reason behind India’s surge in stock market capitalisation

New listings, whether they take the form of an IPO, FPO, OFS, etc., also result in a rise in market cap for all BSE-listed companies.

According to Jefferies analysts, when Indian unicorns begin to mature over the next five to seven years and a capex cycle necessitates requirements for equity across sectors, IPO and FPO issuance could account for 4%–5% of market cap.

Indian unicorns are valued at approximately $350 billion, with a total financing of $100 billion.

In the immediate to medium term, companies like Flipkart, Swiggy, Ola Electric, and PhonePe might list on exchanges. Reliance Industries is also anticipated to generate value for shareholders by listing Reliance Jio and Reliance Retail.

Hyundai India recently expressed interest in raising $3 billion through an IPO that may be India’s largest at a valuation of up to $30 billion.

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