Bulls Drive India to $5 Trillion Exclusive Club; Economy Poised to be Third Largest Economy by 2027

Bulls Drive India to $5 Trillion Exclusive Club; Economy Poised to be Third Largest Economy by 2027

Mumbai - Bulls surged back into action on Dalal Street, with benchmark indices reaching new record highs. The Nifty closed just shy of the coveted 23,000 mark, driven by buying across most sectors except for metal and pharma, despite hawkish Fed minutes.

The Indian stock market joined the exclusive $5 trillion club for the first time ever yesterday, defying the FII pullout ahead of the Lok Sabha election outcome on June 4. Currently, only four other stock markets worldwide—USA, China, Japan, and Hong Kong—are in the $5 trillion-plus club. The US leads with a market cap of nearly $55.65 trillion, followed by China ($9.4 trillion), Japan ($6.42 trillion), and Hong Kong ($5.47 trillion).

Globally, India is now the fifth-largest stock market, behind only Hong Kong, Japan, China, and the US. India's journey from $1 trillion on May 28, 2007, to $5 trillion on May 21, 2024, has been marked by significant milestones, including reaching $2 trillion on May 16, 2017, and $3 trillion on May 24, 2021.

On Tuesday, the combined market capitalization of all listed stocks on the BSE rose to Rs 414.75 lakh crore ($5 trillion) as investors continued to pile into the broader market. This milestone was achieved in less than six months, marking an unprecedented pace of wealth creation.

The Nifty is now about 250 points away from its all-time high, while mid and small-cap indices touched new peaks. This leg of the bull run is driven by domestic institutional, retail, and HNI investors, despite FIIs pulling out at least Rs 28,000 crore from Dalal Street this month.

Despite recent volatility amid election-related speculations, comments from Prime Minister Narendra Modi and Home Minister Amit Shah have bolstered investor confidence. Modi suggested the market would hit fresh highs post-election, while Shah encouraged investors to buy the dip.

India is expected to become the world's third-largest economy by 2027, with a market cap projected to reach $10 trillion by 2030, assuming market returns align with historical trends and new listings.

India's increasing market capitalization can be attributed to rising share prices and new listings. Jefferies analysts estimate that IPO and FPO issuance could reach 4%-5% of market cap as Indian unicorns mature and a capex cycle triggers equity requirements across sectors. With cumulative funding of $100 billion, Indian unicorns command a valuation of around $350 billion, with potential listings from companies like Flipkart, Swiggy, Ola Electric, and PhonePe.

India's stock market is now within striking distance of Hong Kong's $5.39 trillion market cap. Deepak Jasani, head of retail research at HDFC Securities, highlights that the recent recovery in Hong Kong and Chinese markets has boosted their market cap. However, analysts believe India will eventually surpass Hong Kong, driven by economic growth and corporate profitability.

Since April, Hong Kong's Hang Seng Index has surged over 12%, emerging as the world's top-performing major index, up nearly 20% from its January low. Factors such as a stronger Chinese economy, lower valuations, and increased mainland investments have revitalized the market. Meanwhile, India could potentially surpass Hong Kong's market capitalization soon, driven by strong domestic factors and consistent growth across all levels.

Market experts caution about potential market vulnerability post-election amid high valuations. Ajay Bodke, an independent analyst, warns of unchecked euphoria and irrational exuberance driving market frenzy. The SEBI chief has also cautioned about excesses, particularly in small and mid-cap segments, where price movements often disconnect from fundamentals.

Profit-taking by FIIs is expected to persist, heightening the vulnerability of Indian equity markets to significant corrections. For many small investors accustomed to continuous market gains, navigating potential wealth erosion and prolonged sideways movements post-correction will be a challenging task.

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