Mumbai: The total market capitalisation of BSE-listed stocks closed above $5 trillion on Thursday as the benchmark indices ended at record levels led by banks and auto stocks. India's market capitalisation to Gross Domestic Product (GDP) - a measure to determine if a market is under-valued or over-valued - surged to 1.42 times, or 142%, inching closer to the peak seen in 2007.
At the close of Thursday's trading, the market-cap of all BSE-listed companies stood at $5.05 trillion (or ₹420.22 lakh crore). India is the fifth country after the US, China, Japan, and Hong Kong whose market capitalisations have crossed the $5-trillion mark.
"The market crossing the $5-trillion market capitalisation is barely a surprise since all asset classes seem to be performing well," said Andrew Holland, CEO-Avendus Capital Alternate Strategies.
On Tuesday, the market capitalisation of locally-listed companies crossed $5 trillion briefly for the first time but ended below the mark. The trillion-dollar market cap addition to $5 trillion took less than 6 months, thanks to the broad-based surge in the stock market.
The market value of BSE-listed companies surpassed $4 trillion for the first time on November 29. The market-cap hit $1 trillion for the first time in May 2007, $2 trillion in July 2017, and the $3 trillion mark in May 2021.
The M-cap to GDP ratio, popularly known as the Warren Buffet indicator, at 1.42 times (based on FY24 GDP) suggests the stock market rally may be stretched. Analysts said the higher reading is also an indication of strong macro-economic prospects for India.
"The high M-cap to GDP is a function of supportive factors and different setup compared to 2007 since this time the setup is conducive for growth," said Neeraj Chadawar, head - fundamental and quantitative research, Axis Securities.
Chadawar said if the ratio is calculated on FY25 GDP estimates, it would be 126%( 1.26 times) "This indicates that the markets are expected to trade at premium levels given the robust macros," he said.
In theory, when the market-cap to GDP is at 50%-75%, the market is considered undervalued. At 75%-100%, it's considered fairly valued. As the ratio climbs above 100%, analysts assess the extent of overvaluation along with other parameters.
"The economy is entering a private capex cycle, and markets are at premium valuations. So, the M-cap to GDP could move above 126% (based on FY25 GDP) in the near term," said Chadawar.
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