At the outset, I am really sad to write this article, but unfortunately the reality is that the Indian Stock Market (BSE-Sensex) is no longer a Trillion Dollar Market.
Before we proceed any further, some of you may ask, "Was India a Trillion Dollar Market?"
Oh YES. India was a member of the elite group of country's whose market share is over a Trillion US Dollars. The Indian market had first achieved a trillion-dollar size about four and half years ago on May 28, 2007. It was a historic landmark, but about a year later on July 1, 2008 it lost its tag of "A Trillion dollar market". However, India again joined this elite club of markets with trillion-dollar valuation about a year later on June 3, 2009. The Indian market was, in fact, seen inching towards the two-trillion dollar mark at least twice in the past; first in early 2008 and then at the beginning of 2011 when our Market Size was as high as USD 1.9 trillion.
What is a Trillion Dollar Market?
A Trillion Dollar Market is one, where the total value of the shares listed in the exchange (Market Capitalization of the Exchange) is worth over 1 Trillion US Dollars. This is calculated by taking the Market Capitalization of every single share that is listed in the exchange and summing them all up. The value in terms of Indian Rupees is then converted into US Dollars at the prevailing exchange rate and the Market Value in US dollars is calculated.
1 Trillion USD at todays exchange rate = Rs. 52800000000000. Dont try to convert this into words, this is over 52 lakh Crores Indian Rupees
Note: 1 USD as of End of Trading Day 20th December 2011 is 52.801
Why did this happen?
The causes are many fold
1. Global Economic Scenario - The Economic Scenario world over is very volatile and as a result stock markets world wide have lost significant ground. The Indian market is no exception. The Indian Stock Market (BSE Sensex) closed at around 15175 which is nearly 2000 points down from what the Sensex was last year in December. (Sensex was around 17000 points in December 2010)
2. Foreign Investors (FII's) Pulling Out Funds - Again, this is a direct result of the previous point "The Global Economic Scenario". Due to turbulence in the markets world wide, foreign investors have pulled out lakhs of crores worth money from the Indian Stock Markets, which has not helped the Indian Markets.
3. Local Investor Sentiment - Again, this is also due to the "Global Economic Scenario". Due to the turbulents in the markets world wide, Indian Investors have panicked and begun selling off their investments and moving over to more secure investments like Bank Deposits, Gold and Real Estate. This coupled with the FII's pulling out funds, has made the BSE Sensex tank over 2000 points when compared to the same time last year (December 2010)
4. Indian Currency Depereciation - As you may have read in my previous post Is the Indian Currency Rupee Depreciation against the US Dollar Good or Bad? the Indian Rupee has depreciated significantly against the US dollar over the past few weeks. Just 6 months ago, One USD was worth around 45 Indian Rupees and now it is worth more than 52 rupees. Though the Indian market capitalization in terms of rupees has fallen, the fall in value of the Indian Rupee has further aggravated the situation because, the market capitalization has to go up by a further 7 rupees to catch up every dollar to meet the 1 Trillion Mark.
What is the Current Market Capitalization?
As of 20th December 2011, the Market Capitalization of BSE Sensex was Rs 5260441 crores. As you can see from just a few paragraphs away, the total market cap must be atleast 5280000 crores in order to touch the 1 Trillion Mark.
Will the Indian Market Regain the Prestigious 1 Trillion Dollar Tag?
Yes. This is not the end of the road. The Indian Stock Market has lost over 20 lakh crores (2000000 crores) over the past year. If you add this to the current market capitalization of 5260441 crores we get over 72 lakh crores and that is more than sufficient to regain the Trillion Dollar Tag.
Due to the year end bull run (Yes, this happens almost every year. During christmas & new year, markets worldwide go through a rally that see's a hike in market value due to the holiday sentiment) which may happen this year too, if the stock market regains around 500 odd points, I am sure the Indian Market will regain its tag of "A 1 Trillion Dollar Market".
Lets keep our fingers crossed and hope for the best.
Happy Holidays Everyone!!! Lets hope that the New Year will bring in good news for the markets worldwide and bring a smile in the face of every investor!!!