India’s share in world m-cap falls as domestic markets underperform global indices

Published: June 23, 2020 3:10 AM

Currently, the Nasdaq index in the US trades at 9,946.12 but this was not the case in 2010 where it was trading 2,300 levels.

Others believe that a lot many sectors and their performance is not captured in the m-cap of the indices. Others believe that a lot many sectors and their performance is not captured in the m-cap of the indices.

By Urvashi Valecha

The world’s market capitalisation (m-cap) as on June 22 stood at $81 trillion and India’s share in it has declined to 2.18%. The country’s 10 year average in world’s m-cap has been 2.47% in dollar terms. In stark contrast, the m-cap of the United States of America has steadily inched up over the last decade to 40.87% against its average of 35.56%.

The share of India’s m-cap had touched an all-time high of 3.44% in dollar terms during August 2018 but, has been declining since then as markets have been under pressure due to slowing growth and weaker earnings. When the Indian markets reached their all-time-highs in January, the share of India’s m-cap in the global m-cap in dollar terms was at 2.48%. According to Joseph Thomas, head of research, Emkay Wealth Management,the share to global m-cap is dependent on the relative performance of Indian markets compared to other markets and strength of the local currency against the US dollar. Over the recent past, India has fared poorly on both fronts.

Over the last ten years, the compounded annual growth rate (CAGR) returns of Nifty in dollar terms stand at 4.12% and the same in the last five years are at 1% in dollar terms. The Indian benchmark Nifty has outperformed the MSCI Emerging Markets index for the same period with the MSCI EM CAGR standing at 2.96% and negative 0.96%, in dollar terms for a ten year period and five year period. “The acceleration of economic stress owing to pandemic related lockdown and weak investment trend of FIIs in the current year has negatively impacted the performance of (Indian) markets as well as the Indian rupee,” said Joseph Thomas of Emkay Wealth Management. Conversely, the CAGR from Dow Jones over a period of ten years were at 11.79% and the five year CAGR were at 9.06%.

Currently, the Nasdaq index in the US trades at 9,946.12 but this was not the case in 2010 where it was trading 2,300 levels. In contrast, Nifty in 2010 was trading at 5,400 levels and is currently trading at the 10,300 mark. In the Nasdaq index marquee technology stocks such as Apple, Microsoft, Amazon.com, Neftlix, Facebook and Alphabet, the parent company of Google, among others are listed that have seen their m-cap rise over the last decade. Naveen Kulkarni, chief investment officer, Axis Securities, stated that India’s m-cap has not declined but if something else has risen much more compared to India then that will have a greater contribution. “The technology stocks in the world have contributed much more growth and market capitalisation in the world’s scheme of things, that’s why the contribution of the US has gone up and India has come down. In the overall global market cap, the contribution of technology stocks has increased significantly to Indian contribution, which has decreased because India does not have such companies in the stock market,” said Naveen Kulkarni.

Others believe that a lot many sectors and their performance is not captured in the m-cap of the indices. U R Bhat, director, Dalton Capital Advisors (India), said, “India’s m-cap has not improved as much since there are many economic activities that are not being captured in the m-cap of the country. Large-scale economic activities in sectors like agriculture, jewelry, technology, e-commerce etc. are not captured as much in the Indian m-cap.” According to Bhat, this is leading to a significant difference between economic activities and m-cap which will reduce as and when such companies list. It would also lead to an increase in m-cap.

Going ahead, experts believe that the future looks bright for technology companies with cloud technology and work-from home models coming up. Naveen Kulkarni said, “At this point in time, I don’t envisage a change in the leadership of the US happening in the post Covid-19 world and in the medium term, we will see technology doing better than earlier.”

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