What has happened?
- India’s equity market is on the cusp of overtaking that of the UK in value to join the world’s top-five club, at least by one measure.
- The likely feat comes as record-low interest rates and a retail-investing boom propel stocks in the former British colony to record highs.
- India’s market capitalization has surged 37% this year to $3.46 trillion, according to an index compiled by Bloomberg, representing the combined value of companies with a primary listing there.
- That’s closing in on the UK, which has seen an increase of about 9% to $3.59 trillion, though the number is much larger if secondary listings and depositary receipts are included.
- The S&P BSE Sensex — the key index of the Indian bourse BSE Ltd. — has soared more than 130% since its trough in March last year, the most among major national benchmarks tracked by Bloomberg.
- It has handed investors an annualized return of almost 15% in dollar terms over five years, more than double the 6% for the UK’s benchmark FTSE 100 Index.
- As the two economies converge in size, India’s higher growth potential and a vibrant technology sector that’s seen a flood of startups going public this year,
- Are giving the emerging market an edge — especially when sentiment toward Chinese equities has soured.
- As for the U.K., uncertainties related to Brexit continue to weigh on the market.
- “India is seen as an attractive domestic stock market with good longer-term growth potential from an immature economy, and a stable and reformist political base is helpful in realizing this potential.“
- “On the other hand, the UK has been out of favor since the Brexit referendum outcome.”
The journey of $3 trillion
- There was much celebration when the market capitalisation of Indian exchanges crosses the $3 trillion mark this May.
- In the four months since then, stocks have continued to surge despite lingering concerns about the pandemic and the Damocles sword of US Fed’s monetary tightening hanging over the market;
- Current market cap is about 15 per cent higher, at $3.47 trillion.
- A recent global strategy paper by Goldman Sachs however estimates that India’s market cap will increase to $5 trillion by 2024.
- The writers of the report have based this projections on the slew of IPOs set to hit the domestic market in the coming years.
- But there are couple of other changes taking place in Indian markets that makes this target achievable, albeit at a later date than that projected.
- One, a large wave of new investors who are tech savvy and more prone to taking risk are overrunning the older set of more conservative investors.
- Two, the economy itself is undergoing transformation with most consumer-facing services and products going online, creating growth opportunities for technology firms and businesses.
- The three factors taken together have brought Indian markets to an inflexion point which can eventually take it towards the $5 trillion milestone.
Q) What is the main cause of the export surplus?
- The country’s stringent import policy
- Developments in national and international markets
- The country’s exports promotion value
- None of the above