Indian stock market is on the verge of hitting the coveted $5 trillion market capitalisation mark.

Following an unprecedented amount of wealth creation in the last 3 months, the Indian stock market is on the verge of hitting the coveted $5 trillion market capitalisation mark. Given the growth run rate after India joined the $4 trillion club on 29 November 2023, the new milestone could be achieved next month as well if the mega bull run sustains. The combined market value of all listed stocks on BSE has grown to $4.8 trillion in less than 3 months. If India hits the $5 trillion level in FY24, it would mean a tsunami of $1 trillion wealth creation in just 4 months. Having already left Hong Kong behind, India is now the fourth largest stock market in the world behind the mother market of the USA, followed by China and Japan.

India hit $1 trillion for the first time on 28th May 2007. It took the Street another 10 years to get to the next trillion. The $2 trillion milestone came on 16th May 2017. The next one was quicker as the $3 trillion level was hit in four years on 24th May 2021.

Assuming market returns in line with the last 15-20 year history and new listings, analysts at Jefferies are expecting that India to become nearly a $10 trillion market by 2030 - impossible for large global investors to ignore. The growth in investor wealth is to be seen in the context of India's growing claim as the next Asian Tiger. Over the last 10 years, India’s GDP has grown by CAGR of 7% in USD terms to $3.6 trillion - jumping from the 8th largest to the 5th largest economy.

"Over the next 4 years, India’s GDP will likely touch $5 trillion making it the 3rd largest economy by 2027, overtaking Japan and Germany, being the fastest growing large economy with the tailwinds of demographics (consistent labour supply), improving institutional strength and improvement in governance," said Mahesh Nandurkar of Jefferies.

India's market cap to GDP is 1.2x, which is still lower compared to major economies such as the US and Japan which are at 1.9x/1.4x, respectively. Despite being the fourth largest hub of stocks, India's ranking in the Bloomberg World Index is 8th with a weight of just 2% which indicates enough headroom for FIIs to start pouring in more dollars. While Indian retail investor's new found love for stocks has made headlines, the penetration of household savings in equities is 4.7% against China's 5.2%, Europe's 12%, Japan's 17.6% and US' 22%. As 'Sell China, Buy India' seems to be the mantra of many FIIs, India's weight in MSCI EM index has doubled in just 4 years while that of China has fallen down. The February rejig of the global index will lead to another passive inflow of more than $1 billion to Dalal Street. IPO boom Besides stock prices, market capitalization is also dependent on listings and delistings. Jefferies analysts estimate that IPO and FPO issuance could reach 4%-5% of market cap as Indian unicorns start maturing over the next 5-7 years and a capex cycle triggers requirements for equities across sectors. With cumulative funding of $100 billion, Indian unicorns command a valuation of around $350 billion. The likes of Flipkart, Swiggy, Ola Electric, PhonePe may list on exchanges in the near to medium term while Reliance Industries is also expected to unlock value for shareholders by listing Reliance Jio and Reliance Retail. Recently, Hyundai India had shown interest to list in India to raise $3 billion which would be India’s biggest IPO at a valuation of up to $30 billion. Who's making money in this bull market? Since India hit the $4 trillion mark in November-end, Nifty is up around 12% but investors in smaller stocks are laughing their way to the bank after bagging many multibaggers. The happy-go-lucky attitude of India's retail investors, who braved lockdowns, inflation, interest rate hikes, fear of recession and multiple geopolitical tensions to keep Dalal Street flush with cash, is turning out to be the biggest beneficiary of this bull run.

However, retail investors have also ignored valuation concerns which can haunt the new don of Dalal Street in a bear market as trees don’t grow to the sky.