Market capitalization-to-GDP ratio rebounds, at a record year-end high in FY22 – know what brokerage says

For the first time in a decade, India’s market capitalization to GDP (Gross Domestic Product) has breached 110 per cent and is at a fresh year-end high in the financial year 2021-22 (FY22) more than double that of FY20 (covid year), a domestic brokerage firm Motilal Oswal said in its report. 

According to Motilal Oswal, M-cap/GDP has rebounded to 112 per cent at present (of FY22 GDP), above its long-term average of 79 per cent. The ratio was at the highest level since CY07 (calendar year 2007).

Currently, on FY23E GDP growth of 11 per cent, the ratio stands at 98 per cent lower than the earlier fiscal, the brokerage said in a report, adding that the ratio had improved by 104 per cent in FY21 (the second highest in a decade) from 56 per cent in FY20 and 80 per cent in FY19. 

Between FY17 and FY19, the market-cap/GDP ratio had been mostly stable with meagre flatuction between 79-83 per cent,  

The Nifty is trading at a 12-month forward RoE (Return on Equity) of 15.6 per cent, above its long-term average, Motilal Oswal said in its report. 

The stock market capitalization-to-GDP is a ratio used to determine whether an overall market is undervalued or overvalued compared to a historical average, according to Investopedia and said, the ratio is also known as the Buffett Indicator—after investor Warren Buffett, who popularised its use. 

In global equities, India’s share in the world Market-cap stood at 3.1 per cent – above the historical average of 2.5 per cent, the brokerage also said, adding that India is among the top-5 contributors to the world market cap. 

Besides, in the last 12 months, the global market cap has declined 8.4 per cent while on the contrary India’s market cap has risen 7.4 per cent. Barring Indonesia and India, all key global markets saw a decline in market cap over the last 12 months.