India’s Growth Story: GDP and Market Capitalization

India's economic journey over the past two decades is fascinating when viewed through the lens of GDP and market capitalization. Let's dive into this growth story, examining the key phases that shaped it.

Fig.1 GDP of Indian Economy (in $ Crs)

From 2004 to 2024, the Indian economy grew at an impressive rate of 9.34% annually, driven by a boom in the service sector, infrastructure development, and other key industries.

Market Capitalization

Market capitalization, particularly of the approximately 5,000 companies listed on the BSE, also experienced significant growth over the same period.

Source: BSE website

The market cap grew at 13.47%, outpacing the GDP growth rate. In recent years, market capitalization reached unprecedented levels.

Let's break down this growth into different phases:

Phase 1: 2004-08

During this phase, there was a major bull run in the market, and both GDP and market cap saw substantial growth. However, the 2008 financial crisis caused a drastic 59.55% decline in market cap, erasing half of its value. It took nine years for the market to recover to its pre-crisis valuation. GDP also fell, but since the Indian economy was less interconnected with the U.S. at the time, the GDP loss was limited to 1.18%, and it quickly recovered the following year.

Phase 2: 2009-13

The market was on a recovery path but faced several setbacks, including high inflation, delayed policymaking, and the European crisis, coupled with a slow recovery in the U.S. GDP grew at a steady rate initially but slowed to a nominal growth rate of about 1% by the end of this phase.

Phase 3: 2013-20

In this phase, a new government was formed by the Bharatiya Janata Party (BJP) with a full majority, a first in Indian politics after two to three decades.

Source- Mint

Under the new government, India experienced rapid growth, with the market cap increasing by 33.33% within just one year.

Phase 4: 2020-24

The COVID-19 pandemic struck in 2020, causing major economic shutdowns and confining citizens to their homes. GDP fell by 5.67%, and all industries suffered. The market was gripped by fear, with share prices plummeting.

To illustrate the market's fear during COVID, let's look at the INDIA-VIX.

Source- TradingView

The India-VIX reached its all-time highest point, indicating extreme market uncertainty. However, by the end of the year, the market cap astonishingly grew by approximately 30%.

Phase 5: Post-COVID

Rise of New-Age Investors

The market's hyper-growth attracted new retail investors, and mutual fund participation surged. Capital infusion hit an all-time high and continues to grow.

Source: Reuters

India's growth story is one of resilience and recovery, marked by significant economic events and market trends. This journey underscores the dynamic nature of India's economy and its capacity to adapt and thrive amidst challenges.