India, the fifth largest equity market in the world, has added more than $1 trillion to its market capitalization over the last six months. The relentless rally in stocks has propelled frontline indices to fresh record highs and given a boost to participation.
Since the beginning of 2024, the combined market capitalization of companies listed on Indian bourses has surged by 24.5% to $5.23 trillion. In contrast, the second-largest market, China, saw a $1.06 trillion erosion in market capitalization during the same period.
Data reveals that while the Japanese market remained almost flat over the last six months, the fourth largest market, Hong Kong, added just $428 billion.
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In absolute terms, the Indian market has never seen an increase of this magnitude except in 2007. During that year, the market capitalization of the country swelled by $1 trillion to $1.81 trillion. This recent increase in market valuation is attributed not only to rising stock prices but also to the listing of new companies on Dalal Street.
What’s The Flow Suggest
Recent data indicates a notable shift in investor sentiment favoring India over China, with the majority of inflows originating from US investors. The influx of funds predominantly targets large-cap funds, while mid- and small-cap segments await a similar resurgence.
Over the past weeks, the USA contributed the largest inflow at $700 million, followed by substantial investments from Ireland ($447 million) and Japan ($433 million). Additionally, Korea also added $130 million to these inflows.
Comparatively, China faced significant outflows totaling $2.3 billion in the same period, underscoring India’s rising attractiveness as an investment destination. Japan witnessed outflows of $753 million, and substantial fund withdrawals were observed from Taiwan and Brazil, further highlighting India’s growing appeal.
Furthermore, Foreign Portfolio Investors (FPIs), who were net sellers in April and May, have reversed course, becoming net buyers.
They purchased stocks amounting to nearly $1.4 billion in the last five trading sessions up to June 14, 2024. This shift contrasts sharply with April’s net selling of $1.04 billion and May’s outflow of $3.06 billion, signaling renewed confidence in India’s market prospects.
The top stocks in terms of market capitatlisation
Reliance Industries currently tops the market capitalization league table with over $245.3 billion. The second-largest company, Tata Consultancy Services (TCS), commands a market valuation of $167 billion.
India now has five companies with a market capitalization of at least $100 billion. These include HDFC Bank, Bharti Airtel, and ICICI Bank. Together, these five companies contribute 14.5% to the total market capitalization, which stood at $5.23 trillion as of Wednesday’s close.
Valuations a worry?
However, experts remain cautious about the valuation of Indian stocks, which have been commanding premium valuations over other emerging markets. Although the valuations of the Nifty50 are more palatable, broader market valuations are even more expensive, with the expensiveness being inversely proportional to capitalization, quality, and risk.
