Of Market Cap to GDP ratio

The Indian benchmark index’s recovery from 2008 lows is the second-best in the world after the US. But its market cap has failed to keep pace with the country’s GDP, which has almost doubled in the past five years. Indian markets’ current equity capitalisation is about 61% of India’s GDP and lags developed countries and emerging ones such as Taiwan, Malaysia, South Africa and the Philippines. India’s m-cap to GDP ratio was 96% in December 2010 and 146% in December 2007. India’s GDP, on the other hand, has risen from $ 950 billion to $1.8 trillion. The percentage of market cap to the gross domestic product gauges the degree of financial maturity and the economy’s dependence on capital markets. The most obvious reason behind the decline lies in the depth of market performance since then. Since December 2007, the BSE’s market cap has declined 1% from around 71.51 lakh crore to 71.04 crore. A few sectors such as consumer goods, pharmaceuticals and IT have been the big gainers in the rally. The remaining sectors have grossly underperformed. At the peak of the equity boom in late 2007, the ratio was 146%. In fact, post the 2008-09 global economic crisis, the earnings have improved, but valuations are still low.