India's market capitalisation to GDP ratio reaches 15-year high of 140%

The stock prices of listed companies in India have surged ahead of the country's gross domestic product (GDP) growth, with the market capitalization (mcap) of all BSE-listed and traded companies increasing by 61% since March 2023, while India’s GDP grew by an estimated 10% in FY24. This has led to India’s mcap-to-GDP ratio reaching a 15-year high of 140.2%, compared to 95.8% in March 2023. \r

The combined mcap of the 4,357 companies available for trade stood at around Rs 416 trillion, slightly below the all-time high of 149.4% recorded in December 2007. However, historical trends indicate that such high ratios have been followed by sharp corrections in equity prices, with the ratio declining nearly two-thirds to 54.8% by March 2009. \r

While India’s top 30 listed companies have seen a modest increase of 27.2% in mcap, small and midcap stocks have experienced substantial gains, driven by a surge in new retail investors entering the equity market. Chokkalingam G, founder of Equinomics Research, cautions investors about the sharp rise in valuations of small and midcap stocks, driven largely by retail investors' enthusiasm rather than earnings fundamentals.