What is market capitalization of Indian Share market ?

Market Capitalization of a company is the total worth of the company in the stock market. Hence, this is the amount of money using which an investor can buy the whole company from the stock market and can gain control of the company.

The market capitalization is calculated by multiplying the total number of outstanding shares with the price of each share.

For example, let us calculate the market cap of Reliance Industries.

  • Stock Price = 1319
  • Outstanding Shares = 3.25 Billion

Market Capitalization = 4.30 Trillion Rupees. ( 1319 * 3.23 Billion )

So, if someone asks you –  “Which company has a higher market capitalization?”

  • ITC (Per Share price @ Rs 306)
  • Asian Paints  (Per Share Price @ Rs 1155.75)

The answer is that you do not know, because to calculate market capitalization you also need the total number of outstanding shares.

Now, let us add these details:

  • ITC (Per share price @ Rs 306) & outstanding share are 12.15 Billion.
  • Asian Paints (Per Share Price @ Rs 1155.75) & outstanding share are 959.2 million.

With both these value, you can calculate that market cap of ITC is around 371,709 crores and Asian Paints is around 110,859 crores. Hence although per stock price of Asian paints around 3 times more than ITC, ITC is 3.5 times bigger than Asian paints!!!!

Just to reiterate – Market Capitalization is the amount of money using an investor can buy the whole company from the stock market.

Since the market price of a share is the public opinion about the worth of a company’s stock. Hence, market capitalization is the public opinion of what the whole company is worth. The opinion is generally based on a number of company-specific factors like the future product pipeline, management trust, past performance etc and general economic factors like inflation, interest rates, etc.

Market Cap definition of Indian companies

Market Capitalization is regarded as an indicator of company’s size. In India, we categorize stocks in three different market capitalizations:

Classification of CompanyMarket Capitalization of Company
Large CapAbove Rs 10,000 Crores
Mid CapBetween 2000 Crores and 10,000 Crores
Small CapLess than 2000 Crores

Typically, large cap companies are stable (have been around for decades) and money invested in these companies, gives less return(at a lower risk).  On the contrary, the small cap companies(are relatively new) and offers better returns (but at much higher risk).  in his

Total Market Capitalization of all Indian Companies.

The total market capitalization of all Indian companies listed in BSE & NSE around $1.6 Trillion (as of 2017). Today, India is part of the 16 stock exchanges whose market cap has crossed $1.0 trillion – also known as “The Trillion Dollar Club”.

** 1.6 Trillion USD translates into approximately 95 Lakh Crores Rupees.

 

Since market capitalization is directly proportional to stock price, it’s worth noting that during 2008 meltdown, the market capitalization of Indian stocks reduced to $647 Billion. Hence our entire stock market has grown around 2.5 times in last 9 years.

GDP

Total dollar value of all goods and services produced in a country over a specific period of time is known as “GDP”(Gross Domestic Product)

In 2016, India’s GDP was 2.2 Trillion and ranks 7th largest across the world.

 

GDP growth percentage is the fundamental number which indicates the growth of an economy. With an annual GDP growth of 7% per year, India has been a bright spot across the world for investment.

It’s because of India’s GDP growth percentage that multinational companies like Uber, Amazon are investing billions of dollar in India. They believe(based on GDP growth %) that India is going to be one of the biggest markets in the world and hence they want to be a part of the Indian market.

Market Capitalization vs GDP

The stock market capitalization to GDP ratio is a ratio used to determine whether an overall market is undervalued or overvalued.

Typically, a result of greater than 100% is said to show that the market is overvalued and a value of less than 50% is said to show that market is undervalued.

Current market cap to GDP ratio for India is at 72% ( 1.6 / 2.2 ), whereas for the US is 132.6%, hence going by this ratio – we think that Indian markets can move potentially higher.

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