Indian stock market's share in global m-cap jumps to 4%. What does it mean?

With domestic stocks outperforming emerging markets peers, the market capitalisation (m-cap) of India as percentage of the total global m-cap hit a record high of 4 per cent in January. India emerging as preferred investment for foreign investors amid concerns over China and EM as a space has helped the MSCI India Index delivering a strong 28 per cent return in the past 12 months against a 5 per cent drop in the MSCI EM index during the same year.

In fact, the Indian share market recently hit the $4 trillion m-cap mark and surpassed Hong Kong as the fourth-largest market. Due to this, India's Buffett indicator i.e. m-cap to GDP ratio -- named after Warren Buffett, has jumped to 129 per cent of the GDP 

"Amid the global uncertainties of growth, the prospect of consistently rising capital spending on infrastructure (which has a higher multiplier effect) while maintaining fiscal discipline raises India's long-term appeal, in our view," HSBC said in its equity strategy for India.

India was among the top contributors to the global market cap in January. The top 10 contributors accounted for 81 per cent of the global market cap in January, Motilal Oswal said in a strategy note.

"In our equity market cycle radar framework, we find that a confluence of several factors are favourably positioned and that the Union Budget stance further reinforces this construct, potentially making 2024 a favourable year for Indian equities," HSBC said.

For years, India commanded a premium over EM equities due to its size and growth prospects. The Motilal Oswal Securities report suggested that the MSCI India Index has outperformed the MSCI EM index by 216 per cent in the last 10 years.

India’s market capitalisation-to-GDP ratio has been volatile, plummeting to 56 per cent of FY20 GDP in March 2020 from 80 per cent in FY19 and, then sharply reviving to 113 per cent in FY22, Motilal Oswal said. The ratio moderated to 95 per cent in FY23.  "It is now at 129 per cent (of FY24E GDP of 8.2 per cent YoY), above its long-term average of 82 per cent,” Motilal Oswal said.

At present, Nifty is trading at a 12-month forward return on equity of 16.1 per cent, which is above its long-term average. On the other hand, Nifty is trading at a 12-month forward PE ratio of 19.7 times, which is near its LPA of 20.3 times. On a trailing basis, Nifty stands at 23 times, near its LPA of 22.2 times.

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