Indian firms' market capitalisation grew at the fastest pace last year:SBI

"The rise in the stock market without significant development in the real economy may raise the issue of financial stability which as per our financial stability index shows modest improvement in April 2021, but lower than the peak witnessed in December 2020. However, it is expected to have declined in May 2021," it warned.

It can be noted that in the past, the Reserve Bank has also expressed risks of financial stability because of the fast growth in stock markets.

The note said the 30-share benchmark of BSE grew 1.8 times in the last year, which was the fastest among major economies, beating others like benchmarks in Russia (1.64 times), Brazil (1.60) and China (1.59).

A sector-wise analysis of Nifty-50 reveals that financial services are the clear winners with Rs 157 lakh crore increase in their market cap during the past one year. IT is another major sector whose market value has increased significantly, followed by oil and gas, consumer goods, automobiles, metals and pharma, it said.

From a returns perspective, it said sector-wise one-year return indicates that IT and materials have performed better.

The increasing retail participation, if it becomes the norm, could also enable a larger resource pool for financing India's infrastructural requirements, the economists said.