India’s market cap-to-GDP ratio falls close to global financial crisis levels

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Published: April 3, 2020 3:29:54 PM

On the back of a sluggish performance that saw benchmark index NSE Nifty 50 fall 23% in the month of March, Indian market cap-to-GDP ratio for financial year 2019-20 has taken a severe beating.

With $1.5 trillion market capitalisation, India’s contribution to the world market capitalisation was at 2.2%, whereas the historic average has been at 2.5%

On the back of a sluggish performance that saw benchmark index NSE Nifty 50 fall 23% in the month of March, Indian market cap-to-GDP ratio for financial year 2019-20 has taken a severe beating, according to a research report by Motilal Oswal. India’s market cap-to-GDP ratio for the fiscal year that just ended is expected to be at 54%, down from 74% in January, making it the worst since the financial year 2008-09. The market cap-to-GDP ratio was 79% in the preceding year. The correction in equity markets has been aided by the spread of novel coronavirus across the country, forcing businesses to shut as India entered a 21-day lockdown to control the spread of the virus.

After witnessing its worst performance, India’s share in the world market capitalization fell below the historic average. With $1.5 trillion market capitalisation, India’s contribution was at 2.2%, whereas the historic average has been at 2.5%. In January, Motilal Oswal had noted that India’s contribution to the world market capitalization was at the historical average level of 2.5%. The market capitalization of India has been trimmed from $2.1 trillion to $1.5 trillion since January. In the last 12-months, world’s market capitalization decreased by 12.3%, while that of India tanked 31%.

Tracking the performance of NSE Nifty 50, the report noted that only 5 stocks among the 50 that constitute the index ended FY20 higher than the previous year. While Nestle was the fiscal year’s best performing stock, jumping 48%, Bharti Airtel, Hindustan Unilever, Asian Paints and Dr Reddy’s were the other gainers on the stock exchange. The worst performing stocks were IndusInd Bank and Zee Entertainment, falling 80% and 72% respectively in FY20. Nifty itself ended the year down  26%.

As the Nifty 50 tanked 23% with 92% of the stocks trading lower, India became the second-worst performing market in the world ahead of Brazil which was down 30%. Surprisingly Chinese markets suffered the least falling just 5%, ahead of Russia which dropped 9% last month and Japan where markets fell 11% in the same time period.  The Morgan Stanley Capital International (MSCI) emerging market index, down 20% in FY20, has gone on to outperform MSCI India as the latter performed poorly in March. For the 12-months ending January 2020, MSCI India had outperformed MSCI EM. 

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