India's market cap crosses $1.5 trillion

The recent surge in the stock market took India's market capitalization past the $1.5 trillion mark on Friday and put the country as the 10th largest market globally . Since falling out of the elite club of countries with a trillion-dollar market cap last August, the sensex has rallied over 31% to its current record close of 25,397, and has added over half-a-trillion in market cap.
Friday's rally in the market, that was led by strong gains in oil, gas and petroleum companies, also lifted 25 more indices from BSE and NSE to all-time record levels, including the NSE nifty which closed at 7,583, up 109 points.
The strong gains in the stock market, mainly driven by foreign fund buying, also strengthened the rupee by 15 paise to 59.18 to a dollar as forex market players expect increased FII inflows that will help the rupee appreciate further. The country's market capitalization has jumped by about half a trillion dollars in less than a year to regain the $1.5-trillion mark -after about four years -on the back of the NaMo wave that has changed the perception about the Indian market among global fund managers.
The recent spurt in the market has also propelled India to be the 10th biggest in terms of market cap, and the second biggest in the BRIC group of countries, behind China which is at $3.23 trillion. In rupee terms, India's market cap is at an all-time high of Rs 89.8 lakh crore.
At the current level, India's market cap-to-GDP ratio is about 0.79. However, this is much lower than the levels seen during the last bull market of 2007-08, when the ratio was nearly 2.
One of the main reasons for this sharp increase in India's market cap-to-GDP ratio is the change in foreign investors' perspective about the Indian market. “This change is mainly because the risk premium from the Indian market has turned from negative to positive in a very short time,“ said Soumya Kanti Ghosh, chief economic advisor, SBI.
Risk premium is the difference between the risk-free return that an investor gets by investing in government securities and what the investor gets by investing in the stock market. In late-July and early August last year, the benchmark yield was at a high of 9.10%, while the sensex had given a return of 7.1% during the one-year period to August 2013. In comparison, the benchmark gilt yield is now down to about 8.5%, while the sensex in the last one year has given a return of 32.2%, that is nearly four times the risk-free return.
“This (the positive risk premium) will provide attractive buying opportunities for investors and if sustained over a longer period, could also trickle down to retail investors,“ Ghosh said.
As foreign investors have stepped up their buying -net buying by FIIs in the last two sessions itself is about $450 million -along with the sensex, about 25 other indices from NSE and BSE also scaled new all-time highs on Friday , exchange data showed. And since last July, when the rupee went into a tailspin after India's economic fundamentals had deteriorated sharply , FIIs have net pumped in nearly $16 billion, according to Sebi data.
The mutual fund industry's assets under management (AUM) scaled new highs, surpassing the Rs.10-lakh-crore mark for the first time ever in May. The industry's AUM rose 7%, or Rs.65,781 crore, to around Rs 10.11 lakh crore in May, according to monthly data released by the Association of Mutual Funds in India (AMFI). The rise in the AUM was primarily due to inflows across major MF categories and surge in domestic equity markets.

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