Buoyed by relentless buying by local and offshore investors, India’s stock market capitalisation (M-cap) has crossed $2 trillion, making it the ninth-largest equity market globally and second, after China, in the universe of emerging markets, according to Bloomberg data. The spurt in stock prices has pushed up India’s M-cap-to-GDP ratio, a tool used by equity strategists to assess the relative valuation of a market, well above the 10-year average.A runaway bull market looks at ways to endorse the euphoria on the Street. With M-cap-to-GDP at 0.88, analysts believe there is tailwind left in the Indian equity story as markets are perceived to be expensive only when this ratio exceeds 1.Typically, the M-cap-to-GDP ratio is anywhere between 0.2 and 0.8 for emerging markets while it moves in a wider range of 0.5-2.2 for developed markets. “India has the largest number of listed companies in the world. Interestingly, nearly 50 per cent of the actively traded companies have M-cap of less than Rs 500 crore.This suggests that Indian companies go public much earlier than in most other large economies. The relatively high Mcap-to-GDP ratio in India, therefore, is reflective of strong appetite of Indian entrepreneurs to access public equity funding and the willingness of Indian equity investors to fund such entrepreneurs,” said Sujan Hajra, chief economist at brokerage Anand Rathi.For India, the ratio, with a 10-year average of 0.78, had peaked at 1.48 in 2007. Based on such a hypothesis, the local M-cap has to rise another 10 per cent for India to be perceived as an expensive market. Since January, local stocks have generated 28 per cent returns in dollar terms — the highest among the top 20 global markets based on M-cap.“India can see further expansion in the M-cap-to-GDP ratio as private and government capex kicks in. The possibility of rating upgrade by the year-end could push up the ratio further. It can reach 1.1 to 1.2,” said A Balasubramanian, CEO, Birla Sun Life Mutual Fund, reflecting the mood in the market.Emerging markets such as Brazil and Mexico have among the lowest M-cap-to-GDP ratios of 0.18 and 0.27, respectively, thanks to their higher dependence on commodities amid falling prices. For France and Germany, it’s at 0.67 and 0.47, respectively, even though their benchmark indices are at new highs.India’s contribution to global M-cap has risen to a six-year high of 2.7 per cent against a six-year average of 2.2 per cent . It has doubled in the past three years. India’s contribution to global GDP is 2.9 per cent , up from 2.4 per cent in 2013.“The ideal ratio for M-cap to GDP globally has been 1:1. However, India’s M-cap and GDP are expected to be in the range of $8-10 trillion by 2030, based on estimates of several institutions.Thus, we see potential for equities market from current levels,” said Sunil Singhania, CIO at Reliance MF