India's market landscape has witnessed significant growth in recent years, marked by a substantial increase in the number of stocks boasting a market capitalization exceeding $1 billion, nearing a total of 500. Despite the scarcity of mega-cap stocks valued at over $50 billion, it's noteworthy that a considerable portion of the largest caps is privately owned and efficiently managed, as highlighted by foreign brokerage firm Jefferies.
Jefferies emphasizes India's standout performance among major emerging market economies, consistently delivering annualized returns exceeding 10% across 5-year, 10-year, 15-year, and 20-year periods. This sustained performance is attributed to India's participation in a multi-year cyclical uptrend. Despite India's growing weightage in the MSCI Emerging Markets index, foreign investors have yet to mirror this increase in their equity exposure, resulting in India's equities being the most under-owned by global emerging market funds since 2014. However, the report anticipates a shift in this trend in the near future.
Furthermore, the report sheds light on the relatively modest allocation towards equities in Indian households' investment portfolios. Equity holdings and inflows represent less than 5% of household assets and annual savings, highlighting room for growth in equity participation. With increasing awareness and inclination towards long-term equity investments, particularly through mutual funds, Jefferies projects structural flows from retail investors to the equity markets at an annual rate of $30-35 billion.
India's market capitalization ranks fifth globally, not only in nominal GDP but also in market cap, standing at $4.3 trillion. However, this figure is dwarfed by the market caps of the US, China, Japan, and Hong Kong. India's market cap to GDP ratio, currently at 1.2x, remains lower compared to leading economies such as the US and Japan, indicating potential for further market expansion and capitalization growth.
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