India’s M-cap growth to exceed that of nominal GDP: Report

India’s growth in market capitalisation will exceed the progression of nominal gross domestic product (GDP) over the coming few years, boosted by a larger share of companies in the economy and newer listings, according to a report.

Kotak Securities, a leading brokerage firm, anticipates substantial contribution from energy, consumer internet and manufacturing companies to the Indian market capitalization, The Economic Times reported. Over the past two decades, the country’s market capitalisation has grown at a Compound Annual Growth Rate (CAGR) of 20% and by 15% CAGR over the past decade. However, it accounts for only 2.5% of the global market capitalisation.

Earlier in May, India’s market capitalisation breached the $3 trillion mark and India became the eighth largest market in the world. This feat was achieved due to the unswerving buying by domestic and foreign institutional investors which remained undeterred by the uncertainty in recovery in earnings that was posed by the Covid-19 pandemic, the ET report added.

Key factors aiding M-cap growth in India

Usually, the growth in a country’s market capitalisation is in tandem with the growth in the economy and factors like per capita income which will drive the revenues and profits of companies. The view of Kotak Securities is contradictory to this and it says that the growth in India’s market capitalisation is faster than that of nominal GDP. The brokerage attributes this to four crucial drivers- listing of new companies, a greater share of Indian companies in the economy, a more extensive formal economy and a larger economy overall.

“We expect the availability of abundant and cheap capital, increasingly favourable economics of disruptive technologies, and favourable government policies to result in a higher share of Indian companies in sectors such as consumer internet, energy, and manufacturing,” the ET reported quoting a note of the Kotak Securities.

In addition to this, Kotak Securities expects the growth in the formal sector to exceed the growth of the overall economy and gain market share from the informal sector in several key sectors like retailing, real estate and healthcare services. It also said that India’s market capitalisation will become bigger and stronger with the listing of unicorns like Swiggy, Ola, Flipkart, Byju’s, Paytm and LIC, the country’s largest insurer.