Indian Market Cap vs Stock Indices

India’s Market Cap hits over 14 month-low by falling to $3.99 trillion, a 23% drop from $5.11 trillion. This sharp correction is triggered by a 2.6% decline in benchmark indices Sensex and Nifty, while Mid-cap and Small-Cap have dropped over 12% and 15% respectively.

Shouldn’t Market Cap decline less than indices, considering the new IPOs added to it?

Key reasons explaining this disconnect are –

Market Cap is often tracked in USD and Indian rupee has weakened nearly 1.5 percent against USD till date making it look like the market has lost more value than it actually has.
Market Cap is calculated as stock price x shares outstanding and the indices are weighted, either by market cap, prices or other factors. So, when stock prices fall, indices are designed to smooth out extreme movements.
Index Weighting vs Actual Market Cap – Indices are weighted towards certain stocks like HDFC has the highest weight of 14.26% but its market cap is less than Reliance Industries (9.50%) and Tata Consultancy Services (4.62%).
Panic selling during corrections lead to higher volatility in individual stocks.
Companies issuing new shares at lower prices during correction further drags down its market cap.

To conclude, movement in stocks is not just about index movements, these structural differences distort their parallel linear movements.

Source – The figures and weightage % is as on 20.02.2025 given by BSE India. Top 8 stocks in terms of their market cap are taken into consideration for analysis.

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