5 Trillion USD & Beyond

Indian markets touched the US$5trn market cap figure (Rs 415 lakh crore) for the first time in May this year. Countrywise, the Indian market today is the fourth largest in the world, after the US, China and Japan. The Indian market has done rather well in the recent past with 20% growth in 2023, 28.6% in FY24, positive growth in 8/9 calendar years and the last trillion added in six months. More than the recent rise of the market, however, is the cause for reflection a milestone like US$5trn provides. In the nearly 30 years since the NSE was launched on Diwali in 1994, the Indian markets have risen from a market cap of Rs 3.6 lakh crore to over Rs 416 lakh crore today, a rise of 114x at a CAGR of ~18%, and a testimony to the rise of the Indian economy too, which has increased by ~29x over the same period and currently ranks as the fifth largest in the world. We have over 9.3 crore registered investors today, whose direct ownership in the equity markets today has reached Rs 36.4 lakh crore, and whose belief in the markets is also visible in the monthly SIP inflows of over Rs20,000 crore.

For Indian markets, though, the data is available, and we see interesting trends. Illustratively, the number of companies with over two lakh investors has increased from 59 to 178 in a decade; with over five lakh investors, from 12 to 72; with over ten lakh investors, five to 39, and with over 25 lakh investors, from 2 to 16! More details in the Story of the Month. Further on the markets, global equity and debt markets faced significant challenges last month, weighed down by higher-than-expected U.S. inflation and a strong job market. The Fed Chair's comments suggested a prolonged battle to reduce inflation to the 2% target, dampening hopes for an easier term structure and prompting a sell-off in across assets.

The MSCI World Index fell by 3.8% in April, marking its first drop in six months, although it rebounded by 4.7% in May, bringing its year-to-date (YTD) gain to 9.2% as of May 24, 2024. Emerging markets outshone developed ones, with Chinese equities benefiting from supportive fiscal measures and Indian equities maintaining steady growth. The MSCI EM Index rose modestly by 0.3% last month and added another 3.5% in May (YTD: +5.8%). In the U.S., the 10year sovereign yield peaked at a six-month high of 4.7% last month but eased to 4.5% by May, while yields in the UK and Europe also rose significantly during the year. Indian markets had a positive April, bolstered by strong economic fundamentals, robust corporate earnings, and consistent domestic institutional investor involvement. Mid- and small-cap companies, which had sharply declined in March, rebounded strongly in April, outpacing large caps. The Nifty50 Index saw a modest May gain of 1.2%, adding another 1.6% so far (YTD: +5.6% as of May 24th, 2024). Meanwhile, the Nifty Midcap 50 and Smallcap 50 Indices increased by 4.7% and 11.8% respectively in April.

Indian debt mirrored global trends with a decline in April due to delayed US rate cuts, rising oil prices, and foreign outflows, though it outperformed its international counterparts. A drop in global bond yields, an unexpected high profit transfer from the RBI to the government, and reduced state borrowings boosted domestic bonds in May. April’s performance helped investors back into the markets to some extent, with the cash markets seeing turnover rise to Rs 21.2 lakh crore (i.e., ADT back above Rs 100,000 crore) and participation by 1.25 crore investors, higher than March’s 1.21 crore, but significantly lower than the 1.5 crore we saw in a short February, which had a turnover of Rs 24.6 lakh crore. Options saw a drop in both turnover and participation for the second month in a row. Individual investor portfolios have seen a reduction in concentration since the pandemic.

Uttar Pradesh finally became the second state in the country to cross a crore investors, contributing ~11% of the 9.32 crore investor base vs. 6.1% of 1.15 crore in 2010. UP’s 1.01 crore investors now from a mere 7.01 lakh then have not been risen linearly, nearly quadrupling since the pandemic. On the macro front, high-frequency indicators continued to exhibit optimism and momentum in the new fiscal. April's Composite PMI stood strong at 61.5, maintaining above 60 for the fourth consecutive month, albeit slightly lower than the previous month, indicating resilience in both manufacturing and services. Industrial activity gauged by the IIP showed robust growth, particularly in manufacturing (5.2% YoY) and electricity (8.6% YoY).

The merchandise trade deficit expanded to $19.1 billion in April, as import growth of 10.3% YoY outstripped exports, which grew only 1.1% YoY, impacted by geopolitical tensions and higher shipping costs, although electronic goods saw a significant 25.8% YoY increase. The overall trade deficit reached a six-month peak at $6.5 billion. Retail inflation remained stable at 4.8% YoY, while wholesale prices rose to a 13-month high of 1.3% YoY. Noteworthy are the sequential increases in most retail core sub-components and easing deflation in manufacturing. Seasonal rainfall will likely influence the overall inflation trend. Government GST collections exceeded Rs 2 lakh crore for the first time in April, supported by strong economic activity at the year's end and a record RBI dividend payout of Rs 2.1 lakh crore, significantly above the budgeted Rs 1.02 lakh crore for FY25(BE), as we had mentioned earlier, bolstering fiscal consolidation.