India’s stock market capitalisation crosses $2 trillion; further expansion expected

India just became the ninth largest equity market in the world as the stock market capitalisation (M-cap) crossed $2 trillion. This was due to the relentless buying by local and offshore investors.

As per the Bloomberg data, the increase in stock prices has pushed up India's M-cap-to-GDP ratio, a tool used by equity strategists to assess the relative valuation of a market, well above the 10-year average.

"India has the largest number of listed companies in the world. Interestingly, nearly 50 per cent of the actively traded companies have M-cap of less than Rs 500 crore. This suggests that Indian companies go public much earlier than in most other large economies. The relatively high Mcap-to-GDP ratio in India, therefore, is reflective of strong appetite of Indian entrepreneurs to access public equity funding and the willingness of Indian equity investors to fund such entrepreneurs,” Sujan Hajra, chief economist at brokerage Anand Rathi, told ET.

For India, the ratio had peaked at 1.48 in 2007.

"India can see further expansion in the M-cap-to-GDP ratio as private and government capex kicks in. The possibility of rating upgrade by the year-end could push up the ratio further. It can reach 1.1 to 1.2,” A. Balasubramanian, CEO, Birla Sun Life Mutual Fund, told ET.

India's contribution to global M-cap has risen to a six-year high of 2.7 per cent against a six-year average of 2.2 per cent .