This is the latest issue of Markets and Macros by TradingQnA written by Abhinav and Shubham.
TradingQnA is India’s most active stock market forum. It’s the go-to place if you are looking for answers relating to trading, investing, personal finance, or anything markets.
Weekly market wrap
Indian capital markets overview
India’s market capitalisation has grown at a 10% CAGR over the last 20 years and currently stands at $3.1 trillion (it peaked to $3.5 trillion).
Source: CEIC
CLSA expects India’s GDP to grow to $44 trillion by 2052. If we assume the Market Cap/GDP ratio remains stable, Market Cap could cross $40 trillion by 2052. Even if the Market Cap/GDP shrinks to pre-Covid level (80%), India’s Market Cap would still reach $35 trillion by 2052.
What is this Market cap to GDP ratio and what does it tell us?
It is used to determine whether an overall market is undervalued or overvalued. Typically, a ratio greater than 100% means the market is overvalued.
The use of this ratio increased in prominence after Warren Buffett commented that it was
“probably the best single measure of where valuations stand at any given moment.”
India’s Market Cap/GDP ratio is in the middle of the range compared to peers. Our current Market Cap/GDP ratio is 95% which points to our markets being fairly valued (the peak was around 112%).
What does it mean for you?
Well, some economic pundits believe that the valuations have dropped which is in our favour and it is a good time for investors to top up and to make an entry.
How has the Indian market changed in the last few years?
There have been 3 major trends in the market:
Growing participation from domestic institutional investors
Total equity AUM of domestic mutual funds has grown at a 25% CAGR over the last decade to nearly $250 billion. This is largely due to the introduction of new schemes and the growing trend of Systematic Investment Plans (SIPs) in India (Indian retail investors have invested an average of Rs 11,808 crores every month via SIPs).
Change in Employee Provident Fund Organization’s (EPFO) investment strategy in FY16 to include equity investments
After FY16, EPFO started investing in equity markets via ETFs. The total AUM of EPFO invested in ETFs has grown from scratch to Rs. 2.26 lakh crores (as of march 31, 2022).
Rising retail and HNI investor participation
The number of retail investors has grown consistently over the years and covid opened the floodgates. Over time there has been greater awareness and digitisation has led to an overall ease of transactions enabled by discount brokers.
The number of demat accounts has increased almost 6 times from 22 million in FY14 to 110 million as of January 2023. The number of unique ‘active’ customers has grown nearly 9x from 4 million in FY14 to 34 million (an active investor is one who has traded at least once in the preceding 12 months).
Don’t be scared of AI, use it to your advantage
Has ChatGPT in particular and AI in general shaken you? Do you feel threatened about your job? Chill. It might not be as bad as it seems.
Here is Dave Nadig’s take on ChatGPT and I couldn’t agree more. He explains how ChatGPT works in a way which is very easy to understand for us everyday people. Once you understand how it works and what its limitations are, you can use it to empower yourself and see it as less of a threat and more of a tool.
There are so many mundane things you do in your work life that can now be done using AI thus freeing up some valuable time for you, in turn boosting your productivity.
This article serves as a guide to using AI to do practical stuff.
Once you are through with the previous article, you should also take a look at this article which tests what all and how much you can accomplish using AI in 30 minutes. The results will surprise you.
Now that you see ChatGPT as a tool, it's not hard to see the biggest challenges that can emanate from it. The potential danger is the same danger we face from every new tool: people. People have been quick and as per Interpol people are already using it to commit crimes.
Climate change is real. Here are 5 things the world is doing to combat it
The European Court of Human Rights is hearing cases accusing the Swiss and French governments of harming their citizens’ human rights by not doing enough to fight climate change. This is a first-of-a-kind case and it will be very interesting to see the outcome of this legal dispute.
The UN General Assembly adopted a resolution, led by the Pacific island nation of Vanuatu, directing the International Court of Justice (ICJ) to clarify the legal responsibilities of nations regarding climate change and whether they should be held accountable for their inactivity. The ICJ will take its own sweet time, about 18 months, and the ruling will not be binding but will carry a lot of moral and persuasive value.
Britain and the EU are collaborating in a bid to establish a carbon border tax, which will entail imposing a tax on carbon-heavy products imported into their territories. This will discourage polluting companies from relocating to nations with lax regulations on carbon emissions by reducing the incentives available to them.
China is taking the battle against climate change to the rooftops. Chinese households are leading the way in decarbonisation efforts by installing 1 out of every 5 solar panels around the world last year.
Solar and wind made up 92% of India’s power generation capacity additions in 2022. To put things in perspective, 13.9 GW Solar capacity was added last year, this is comparable to the United Kingdom's total solar fleet in 2021. Combined together, Solar and wind contributed 15.7 GW capacity addition, which is 17% higher than the previous year's additions. In contrast, the addition of coal energy capacity was less than 1 GW, resulting in a 78% decrease in additions compared to 2021. Within India, Rajasthan and Gujarat accounted for 1/3rd of the total renewable energy capacity addition.
From Twitter
There is a lot to learn from the press conference after SEBI’s recent board meeting, we recommend you watch the press conference.
Healthcare costs in India have been going through the roof. I had written about the need to get health insurance before you start doing anything else with your money in a recent newsletter.
Here is what Nithin Kamath has to say in case you still need more convincing
I hope you are going to get a health insurance, check out ditto
Also, if you are a smoker, you should definitely see this
Recently the Securities Transaction Tax was increased. These are the potential impacts of the same.
Something to listen
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