India's market capitalisation nears peak after broader market rally

Since June, the Nifty Small-cap 100 index has gained 54 per cent and the Nifty Midcap 100 has risen 32 per cent. In comparison, the Nifty 50 index has gained 21 per cent during the same period.
India’s market capitalisation (m-cap) is nearing a new peak even as the benchmark indices and banking stocks, in particular, trade considerably below their record levels.

On Wednesday, the combined m-cap of all BSE-listed companies rose to Rs 160.1 trillion, less than 0.5 per cent below the all-time high of Rs 160.6 trillion seen at the start of the year.

Following losses in the two previous trading sessions, the m-cap has now declined to Rs 159 trillion, but it is only 1 per cent shy of a record.

Interestingly, the m-cap has neared this landmark despite the fact that the Nifty is still down 6 per cent from its all-time high of 12,352 seen on January 17. Also, the banking stocks — which are the biggest contributors to India’s m-cap — are down sharply from their December-January levels. The Bank Nifty index closed at 22,031 on Friday, down 32 per cent compared to its record high of 32,613.

So what has propelled the market to these heights? Sharp gains in shares of Reliance Industries and those in sectors like healthcare and technology have been big drivers. Add to that the sharp rally in the broader market.

Experts said only a few large-caps had propelled the m-cap to record levels in January. While currently we are seeing a wide range of stocks participating.

 

 
“This rally is far broader than the one at the beginning of 2020. In January, it was a bunch of stocks that was driving the market. And the exciting thing is that the banking index is still quite below its peak. Today, we have new sectors emerging as leaders like telecom, pharma, IT,” said AK Prabhakar, head of research, IDBI Capital.

Since June, the Nifty SmallCap 100 index has gained 54 per cent and the Nifty MidCap 100 has risen 32 per cent. In comparison, the Nifty50 index has gained 21 per cent over this period.

 

 
“Large-caps, after having outperformed in the last few years, traded at premium valuations to mid- and small-caps compared to long-term averages. This prepared the ground for the sharp rally in the broader market we have seen. Initially, there was an apprehension that small businesses may not survive the lockdown, which has not been the case,” said Siddhartha Khemka, vice-president head of retail research, Motilal Oswal Financial Services.

This week, the broader market indices got a further shot in the arm after market regulator Securities and Exchange Board of India (Sebi) directed mutual fund multi-cap schemes to increase holdings of mid- and small-caps.

This week the Nifty SmallCap 100 and MidCap 100 indices surged 6 per cent and 5 per cent, respectively, while Nifty managed to eke out only 0.4 per cent gain.

If the market rises 1 per cent from the current levels, India will join a select group of global 
markets to have seen new m-cap peak after the pandemic.



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