BSE-listed companies exceed Rs 400 trillion market value

The valuation of the Indian stock market exceeded ₹400 trillion in a historic milestone on Monday, the last ₹The $100 trillion figure was reached in just nine months, with the country’s strong macroeconomic fundamentals encouraging domestic and foreign investors to put more money into stocks.

The 30-share BSE Sensex rose 494.28 points, or 0.67%, to close at 74,742.50. Intraday, it rose 621.08 points, or 0.83%, to hit a new intraday high of 74,869.30.

“The market capitalisation of BSE-listed companies has increased by 8.4% in 2024 (vs. 7.1% for BSE 500) and by 53.9% since April 1, 2023 (vs. 42% for BSE 500),” said Dhiraj Relli, MD & CEO, HDFC Securities, attributing the rise to a “broad-based” rally driven by domestic and foreign capital flows.

In addition to improving India’s macroeconomic fundamentals, analysts attribute the boom to greater equity allocation and new investors entering the market directly and through mutual funds. Expectations of a sustained turnaround in companies with large equity bases have driven the rise in their market capitalization, Relli explained.

And at least part of the increase in market capitalization can be attributed to new listings of companies such as Medi Assist Healthcare, Jyoti CNC Automation and Juniper Hotels.

India is currently experiencing a mini Goldilocks moment due to solid macroeconomic and microeconomic conditions, giving investors confidence in a long-term uptrend, said Ajay Menon, managing director and CEO of brokerage and distribution at Motilal Oswal Financial Services. Menon predicts volatility at times in the country’s trajectory, driven by notable events such as the general election, high valuations of mid- and small-cap companies and possible global macroeconomic upheavals.

But overall, he added, there is a reason why India has become the fifth largest country in the world in terms of market capitalization. “Nifty has closed FY2024 with an outstanding return of 29%, while India will close FY2024 with GDP growth of over 7.6% and earnings growth of over 20%,” Menon pointed out, pointing to other factors such as record growth in demat accounts and robust domestic inflows.

In March 2024, 3.13 million Demat accounts were added, bringing the total to 151.38 million.

In terms of domestic inflows, domestic institutional investors (DIIs) have been net buyers of Indian equities since August. In March, DIIs bought net ₹56,311.60 Crores.

During Monday’s trading session, the National Stock Exchange’s Nifty 50 and the BSE’s Sensex hit 22,697.30 and 74,869.30 points, respectively, hitting all-time highs for both the major indices.

The key growth drivers for the Indian markets are a strong macroeconomic environment, political continuity and the emerging opportunity to establish India as a key supplier in global supply chains as part of the China+1 strategy, said market expert Ajay Bagga. “We expect foreign investment flows to increase in the second half of the year,” he added.

Early data from some companies point to strong financial results for the March quarter, raising investors’ hopes of a strong earnings finish in fiscal 2024 and continued momentum in fiscal 2025, said Taher Badshah, chief investment officer at Invesco Mutual Fund.

“Unless markets encounter any significant negative catalysts, they are likely to continue to show strength,” Badshah said. While valuations have become stretched, there is optimism that fourth-quarter performance will be strong given the robust macroeconomic backdrop, which will be further boosted by likely policy continuity, he added.

The current price-to-earnings ratio of Sensex stocks (a measure of whether a stock is overvalued or undervalued by simply dividing a company’s share price by its earnings per share (either past or expected)) is 21.12, well below February 2021 highs of over 36. That’s not cheap, but it’s not overvalued either.

Will the market continue to rise?

That’s a difficult question, especially because some experts say that policy continuity is already factored in. But on the earnings side, DSP Asset Managers expects earnings to rise 16% in 2024-25, following last year’s 20% increase.