India exits $3-trillion m-cap club; falls to sixth in global league

Correction in the stock market, FPI sell-off reduce valuation by $676 billion

The Indian market is no longer part of the coveted $3-trillion market capitalisation club. The latest rout in the market has seen its value slip to $2.99 trillion, the lowest in nearly 13 months. From the peak of $3.67 trillion in January, India’s market cap has eroded by $676 billion amid rising bond yields and a record-breaking sell-off by overseas investors.

India is not the only country to move out of the $3-trillion m-cap club, however. The market cap of the UK, Canada, and France too have dropped below this milestone. Germany’s market cap is on the verge of slipping below $2 trillion with the prolonged war between Russia and Ukraine battering European stocks and disrupting supply chains.

Earlier this year, India had entered the top five in the m-cap league. At present, India is ranked sixth, behind Saudi Arabia, which has benefited from rising oil prices this year. India first crossed the $3-trillion market-cap mark on May 31, 2021, and stayed there for over a year.
 

However, that changed after runaway inflation led the US Federal Reserve and other global central banks to aggressively tighten monetary policy. This has triggered fears of a recession, prompting investors to flee risky assets. The world m-cap has declined nearly 20 per cent on a year-to-date basis to $98.5 trillion. At its peak, the world’s m-cap had climbed to $122.5 trillion.

Among the top 15 world markets, the biggest m-cap erosion in percentage terms was of Sweden (34.6 per cent), followed by Germany (25.5 per cent), France (24.6 per cent), and the US (23.4 per cent). Meanwhile, Saudi Arabia is the only market to have seen an increase in its market value this year, rising 15 per cent.

The policy response to soaring inflation has led to repricing of assets this year. Experts say the way the inflation trajectory pans out will determine how the global markets behave during the second half of the year.

“The policy responses hurt the market — but that’s an offshoot of inflation, rather than an independent cause. Inflation trajectory – domestically as also globally – is what will shape the economy, and therefore the market, over the next couple of quarters,” says Aditya Narain, MD and head of research, institutional equities, Edelweiss Securities.

From their peak, India’s benchmark indices have declined about 18 per cent. This has helped somewhat normalise valuations. However, given the global backdrop, this in itself won’t be enough to lift the domestic markets, say experts.

“Recent de-rating has pushed the Nifty 12-month forward price-to-earnings multiple down to its five-year average. However, India remains expensive relative to emerging markets. Therefore, while we believe the likelihood of FPI selling is low, we are not confident of a quick reversal in FPI flows. We are underweight on India relative to EM and our Nifty year-end target is 16,000,” said UBS in a note this week.