Indian Stock Market Achieves Historic $5 Trillion Milestone Amid Domestic Investor Surge

The Indian stock market made history on Tuesday by achieving a market capitalization of $5 trillion for the first time. This milestone was reached after the market generated $1 trillion in wealth over just six months, despite foreign institutional investors (FIIs) withdrawing funds before the Lok Sabha election results on June 4.

The cumulative market capitalization of all listed stocks on the Bombay Stock Exchange (BSE) climbed to Rs 414.75 lakh crore ($5 trillion) during the day as investors continued to purchase stocks in the broader market, even though the Nifty and Sensex indices were struggling to find direction following last week’s rally.

Dalal Street’s journey from $4 trillion on November 29, 2023, to $5 trillion on May 21, 2024, took less than six months. The Nifty is now approximately 250 points away from its all-time high, while the mid-cap and small-cap indices reached new peaks during Tuesday’s session. This phase of the bull run is primarily driven by domestic institutional, retail, and high-net-worth individual (HNI) investors, even though FIIs have withdrawn at least Rs 28,000 crore this month.

India now ranks as the fifth-largest stock market globally, trailing only Hong Kong, Japan, China, and the United States. The country first hit the $1 trillion mark on May 28, 2007. It took another decade for the market to double to $2 trillion, a milestone achieved on May 16, 2017. The $3 trillion milestone came faster, within four years, on May 24, 2021.

Despite a volatile period in recent weeks due to election-related speculations, investors found reassurance in statements from Prime Minister Narendra Modi and Home Minister Amit Shah. “You will see that in one week within June 4, the day election results would be declared, market participants would get tired,” said PM Modi in an interview with NDTV. Similarly, Amit Shah advised investors to buy the dip, predicting a market upturn post-election results.

India is projected to become the third-largest economy by 2027, with the market cap expected to reach $10 trillion by 2030, assuming market returns align with historical trends and new listings continue. As a favorite among emerging market investors globally, India’s increasing market size is expected to attract significant attention from large investors, providing ample liquidity for major players.

Market depth in India has also increased significantly in recent years, with the number of stocks having a market cap of $1 billion nearly doubling to 500. India is among the major emerging market economies that have consistently delivered annualized returns greater than 10% over the last 5, 10, 15, and 20-year periods.

In the MSCI Emerging Markets (EM) index, India’s weightage is set to rise from 18.3% to nearly 19% from May 31, potentially leading to FII inflows of around $2.5 billion. “Over the next four years, India’s GDP will likely touch $5 trillion, making it the third-largest economy by 2027, overtaking Japan and Germany, being the fastest-growing large economy with the tailwinds of demographics (consistent labor supply), improving institutional strength, and improvement in governance,” said analysts from Jefferies.

The surge in India’s stock market capitalization can be attributed to several factors. New listings, whether through Initial Public Offerings (IPOs), Follow-on Public Offerings (FPOs), or Offers for Sale (OFS), contribute significantly to the increase in market cap. Jefferies analysts estimate that IPO and FPO issuances could account for 4%-5% of market cap as Indian unicorns mature over the next 5-7 years, and a new capital expenditure (capex) cycle triggers equity requirements across various sectors.

With cumulative funding of $100 billion, Indian unicorns currently hold a valuation of approximately $350 billion. Companies like Flipkart, Swiggy, Ola Electric, and PhonePe are expected to list on exchanges in the near to medium term. Additionally, Reliance Industries is anticipated to unlock value for shareholders by listing Reliance Jio and Reliance Retail.

The Indian stock market’s rapid ascent to a $5 trillion market capitalization reflects robust domestic investor participation, favorable economic projections, and significant contributions from new listings. Despite global uncertainties and election-related volatility, the market’s resilience and growth potential remain strong, positioning India as a formidable player in the global financial landscape. As Prime Minister Narendra Modi and Home Minister Amit Shah have indicated, the market is expected to stabilize and grow post-election, further solidifying India’s position as a key destination for investors worldwide.