A longish bull run that added to investor cheer over Christmas week 2023 took the most cited index of Indian stock market activity, the Sensex, to a record level of 77,240 on the last trading day of the year. But the 18 per cent increase, over the nine months starting April, that explains that level only partly captures the frenzy in the market.
What is more remarkable is that the share price spikes driving the market boom go well beyond the 30 stocks that enter into the computation of that index. Indices capturing stock price movements of a larger set of large-cap and mid-cap companies have risen by a much higher 34 and 36 per cent over this period. Even small-cap companies as a group delivered a return of more than 21 per cent.
The broad base of the boom has meant that the S&P BSE 200 index, covering 200 selected companies, rose 23 per cent while the S&P BSE 500 recorded a 24 per cent rise over the first nine months of financial year 2023-24. This cross-cutting boom reflects the fact that the rush of investor capital into the market is of a magnitude where the demand for stocks cannot be accommodated by the traded, free-floating equity of just better known companies. In the event, market capitalisation at the Bombay Stock Exchange spiked 34 per cent from Rs.271.8 trillion in April 2023 to Rs.364.3 trillion in December.
Although India’s GDP growth has bounced back from the trough of 2020-21 and stayed at comfortable levels, that alone cannot explain this stock price spike. In fact, the evidence suggests that the boom has gone too far.
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