Prime Minister Narendra Modi said that he would turn India into a $5-trillion economy in about five years. That would make India one of the top five economies in the world. But how does that enrich the people of the country, especially the investing crowd?
A report by K R Choksey Shares & Securities pointed out that as three countries traversed this path — when their respective economies grew from $2 trillion to $5 trillion — their leading stock indices went up multiple times. The rally even continued after that milestone, making investors richer through the years, it showed.
First Economy to Reach the $5-Trillion
The US was the first economy to reach the $5-trillion GDP figure in 1988, and between then and 2000, just before the dot-com bubble burst and the Dow Jones index plunged into a massive bear zone, the index had rallied 17 times. In Japan, the Nikkie had rallied over 19 times, while in comparison the Hang Seng just jumped by a modest five times.
According to Deven Choksey, MD, KR Choksey investment managers, the movement of market capitalisation to the $5-trillion mark is not very different from the movement of the economy to the same mark. “For India, the economy may reach that mark a year or two later,” Choksey said.
The Indian economy is currently at about the $3-trillion mark, while the stock market’s market capitalisation is at about $3.6 trillion.
$400 Billion Worth of Market Cap
A recent report by global financial major Goldman Sachs noted that in the next 2-3 years, several new economy companies, most of them unicorns, are expected to list and add about $400 billion worth of market cap. In addition, according to estimates, the listing of life insurance giant LIC is also expected to add over $200 billion worth of market cap in the next six month.
Important For Investors to Choose Right Stocks
According to Choksey, as the economy and the market traverses the $5-trillion mark, it’s important for investors to choose right stocks. “Stick to the bigger companies in this journey. Because of their sheer size and execution capability, they would outperform their smaller peers and grow to be even bigger,” he said.
In addition, as more and more large global fund managers invest in India, they would look at the large-size companies more intensely than the mid-sized and smaller ones.
