Why India's Stock Markets Are No Longer Climbing the Global Rankings

If the Modi government continues to mishandle the rupee, India might slip even lower, writes Subhash Chandra Garg.

India is getting beaten at both ends for the last about two years.

(Photo: Aroop Mishra/The Quint)

It never rains, it pours. The bad news about the rupee's depreciation and inflation has now been followed by India losing ground in the global market-capitalisation rankings.

Last month, on 26 May, Taiwan had overtaken India for fifth place, with its stocks valued at $4.95 trillion against India's capitalisation of $4.92 trillion. On 1 June, South Korea raced past India with its market cap crossing $5.04 trillion on the back of Indian capitalisation sliding further to $4.84 trillion, relegating India to the seventh place.  

Both developments were particularly galling as, only about 18 months ago, India’s market cap was about 3.5 times of South Korea and twice that of Taiwan. 

India is getting beaten at both ends for the last about two years. While its stock markets have been falling, that of Taiwan and South Korea are scaling new highs.

Why are Indian stock markets performing so badly—both absolutely and relatively? Will India slide back more? Will it go back to the ninth place, where it was in 2013, before the Modi government took over? 

A Roller-Coaster Ride 

Sensex was created only on 1 January 1986. India had no faith in stock markets and market capitalisation as late as the 1980s.

India also had a pathological distaste for foreign investment (the Janata Party government had thrown out IBM and Coca Cola in 1977). 

Things began to change in 1991 when Narasimha Rao and Manmohan Singh introduced economic reforms. Stock markets zoomed—though scamsters (Harshad Mehta in 1992 and others later) did their worst to upend India’s market orientation and liberalisation.

The governments carried out many reforms—like abolishing the Controller of Capital Issues which decided stock issue prices in 1992; introducing the dematerialisation/depositories in 1995; creating the National Stock Exchange as a demutualised stock exchange; and more—making the Indian stock markets globally comparable and institutionally robust.  

Tailwinds from an expanding global economy in the first decade of the 21st century, a massive investment boom in India, rising exports, and burgeoning foreign investment made India a darling of global investors. India’s market cap zoomed to become the ninth largest in 2007.

Then came 2008. A poor handling of the global financial crisis, imprudent expansion of fiscal expenditures thereafter, and inept handling of policy paralysis and scam narratives (like 2G and Commonwealth Games) made India’s market cap shrink from $1.96 trillion in 2007 to $0.79 trillion, as per the 2008 World Bank data. India’s global rank remained unaffected nonetheless until 2013. In May 2014, it went down briefly to tenth.

Renewed confidence in India after the Modi government took over in 2014, several positive initiatives and reforms (like privatisation; bankruptcy and insolvency code; GST, control of fiscal deficit), and collapse of crude oil prices made the Indian stock markets a global favourite again.

India became a there-is-no-alternative (TINA) market and acquired goods premium (reflected in a much higher price-to-earnings ratio) over other markets. India’s market cap jumped to sixth in 2015, and to fourth in 2018, the best ever. 

In its triumphant march, India forged ahead of Canada, France, Germany, Hong Kong, and the UK. There was a minor blip in 2021 when India slipped to the sixth place (with Hong Kong and the UK overtaking). In 2022, India overtook the UK again and moved to fifth place. Then, in January 2024, India regained its fourth place, beating Hong Kong. Thereafter, it has been all downhill.

Hong Kong surged to fourth place in 2024 itself, pushing India back to the fifth. In 2026, Taiwan and South Korea have forged past, making India fall back to seventh place, the worst ranking during the Modi years after early 2015.

Taiwan and South Korea are the new entrants. These are small economies but punching disproportionately above their weight. Major advanced economies (Canada, France, Germany and the UK)—which India marched ahead of on the way from the ninth to the fourth place—still remain behind. Can any one of these countries upstage India?

Market-Cap Determinants 

There are three fundamental determinants of market cap:

• Stock of listed equity

• Market prices of listed stocks

• The country's exchange rate relative to global currency (US dollar currently)

The more the new companies are listed, or stock market prices rise, or exchange rate strengthens—or any positive combination of these factors—the more market cap shoots up. The reverse happens when these factors move the other way. 

The US market cap is currently $75 trillion—about 2.5 times its GDP of $30.7 trillion. India’s market cap of $4.84 trillion is about 1.24 times its GDP of $3.92 trillion.  

The US market cap, in terms of proportion to the GDP, is two times larger. The US market is experiencing vigorous listings (adding to the listed stocks) as well as a rise in share prices, especially in the AI space, creating multi-trillion-dollar stocks (Apple’s market cap of $4.57 trillion is very close to India’s total stock market cap).

Indian stock markets, on the contrary, are moribund—there have been no major new listings, barring odd startups and small-cap companies, which has also stopped significantly in 2026.

As its price-to-earnings ratio is falling (Indian premium has literally disappeared), and the rupee is depreciating heavily, India’s market-cap-to-GDP ratio is actually falling.

In terms of all the three fundamental determinants of market cap, India is currently at the weakest spot. In the absence of a leadership position in any of the three new technology-intensive areas—energy transition, primarily solar power generation and electric vehicles; semiconductors (AI chips); and electronics manufacturing (intelligent robotics and machines)—there are no new India listings by Indian and foreign companies.

Almost all Sensex and Nifty-50 companies are facing valuation drag (IT companies threatened by AI, others by FPIs sell-off, and so on). The rupee depreciation is causing damage as well.

India’s stock market cap is, therefore, quite vulnerable—and may contract further.

Is India Falling Back to Ninth Place? 

The market cap of Canada ($4.53 trillion), the UK ($3.54 trillion), France ($3.45 trillion), and Germany ($2.9 trillion) is smaller than India’s currently. In terms of market-cap-to-GDP ratio, Canada is better off than India at 1.8 times its GDP of $2.51 trillion. The rest three are faring worse.  

• France's market-cap-to-GDP ratio is 1.02 (GDP = $3.37 trillion)

• Germany's ratio is 0.57 (GDP = $5.05 trillion)

• The UK's market-cap-to-GDP ratio is 0.88 (GDP = $4.00 trillion) 

Canada is only 6.5 percent behind India, whereas, market cap of the UK, France, and Germany is 26.9 percent, 28.8 percent, and 40.1 percent behind India, respectively.  

The Toronto stock market has risen by about 35 percent in the last 18 months ($3.34 trillion end-2024). Its exchange rate has also stabilised at about $0.72 to a Canadian dollar after falling in 2024-25. There is a good likelihood of Canada taking over India in market cap.

Both Germany and the UK currently have larger GDPs than that of India. However, their market-cap-to-GDP ratio is significantly lower than India.

While this indicates significant upside potential if their markets rerate, It is unlikely that any of the two would overtake India anytime soon. France, a smaller economy than India with lower market-cap-to-GDP ratio, is also unlikely to overtake.  

This, however, is not guaranteed.  

In case India continues to mess up (making both FDI and FPIs run away), its market cap might collapse. If it continues to mishandle the rupee, as has been the case for the last one year, then India might even slip to the ninth place or lower. 

The Modi government, when it completes the third term in 2029, might leave India at exactly where it took over in 2014. All its good work done in between will get wiped out, making it back to square one.

(Subhash Chandra Garg is the Chief Policy Advisor, SUBHANJALI, and Former Finance and Economic Affairs Secretary, Government of India. He's the author of many books, including 'The $10 Trillion Dream Dented, 'We Also Make Policy', and 'Explanation and Commentary on Budget 2025-26'. This is an opinion piece, and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)