The increased share of companies beyond the top 100 is on account of a stellar run in stocks in the small- and mid-cap universe this year.<\/strong><\/p>\n

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The country’s dash to a $3-trillion market cap is more a case of teamwork, than a few members doing most of the heavy lifting.<\/p>\n

Sample this: The share of top 100 companies to India’s total market cap (BSE-listed companies’ m-cap) is 67.3 per cent currently, less than what it has been when the nation hit previous milestones, such as $1 trillion, $1.5 trillion in 2007 or $2.5 trillion more recently in December 2020.<\/p>\n

In 2007, when India’s m-cap topped the $1-trillion mark for the first time, the top 100 companies accounted for three-fourths of the total m-cap; at $1.5 trillion, the share was almost 80 per cent.<\/p>\n

“This is a good sign as it means retail investors are creating wealth. Typically, retail investors dominate this space,” said Ambareesh Baliga, an independent market analyst.<\/p>\n

The increased share of companies beyond the top 100 is on account of a stellar run in stocks in the small- and mid-cap universe this year.<\/p>\n

The BSE Smallcap index is up nearly 30 per cent and the BSE Midcap index is up 21 per cent year to date.<\/p>\n

In comparison, the Sensex is just up 6 per cent.<\/p>\n

“I won’t say the contribution stocks outside the top 100 is not healthy but the risk is proportionately rising.<\/p>\n

“The June quarter will be bad because of the impact of the second wave of Covid and also valuations because small-caps have gone up,” said G Chokklaingam, founder, Equinomics.<\/p>\n

In 2017, when the $2-trillion m-cap milestone was achieved, the composition was similar to what it is now: Small- and mid-cap stocks were having a dream run.<\/p>\n

However, between January 2018 and March 2020, the broader market indices saw a massive correction.<\/p>\n

Experts don’t rule out a similar script playing out this time around, too.<\/p>\n

“The market has to correct at some point; it’s only a matter of time.<\/p>\n

“Historically, small-caps outperform indices every three-four years but there is a massive correction after a while… at some point, as valuations become unsustainable,” said Chokklaingam.<\/p>\n

Analysts point out valuations of mid- and small-caps are currently at a premium to historical levels on a trailing basis.<\/p>\n

Some are trying to justify the rally based on forward valuations by building lofty earnings growth estimates.<\/p>\n

“I doubt whether this rally could sustain as we are already in a bubble zone.<\/p>\n

“We are already witnessing downgrades for the economy,” said Baliga.<\/p>\n

Analysts say the m-cap-to-GDP ratio, which is currently around 113 per cent, is showing red flags.<\/p>\n

“Typically, 70-75 per cent m-cap-to-GDP is a good buy.<\/p>\n

“Whenever the ratio has gone beyond 110 per cent, the markets have corrected. Anything above 100 per cent, we can say the market is overpriced,” said Baliga.<\/p>\n

Experts say the share of larger stocks can once again go up in future.<\/p>\n

“In India, over the last 10-15 years, large-caps have outperformed mid- and small-caps because the economy has not done so well over a longer period, ” said Saurabh Mukherjea, founder, Marcellus Investment Managers.<\/p>\n

Photograph: Shailesh Andrade\/Reuters<\/strong><\/p>\n

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