Nifty had a non-stop rally from 6000 to 9000 over the last year on the promises of getting rid of policy paralysis, passing of key reforms and bringing back the India’s growth on the track given by the pro-growth government at the centre due to the strong mandate given by the people of India. After the non-stop rally over the last 12 months, the question arise in the mind of investor whether the Indian market cheap or not.
One of the key indicators considered by Warren Buffett is Mcap to GDP ratio. A ratio used to determine whether an overall market is undervalued or overvalued. The result of this calculation is the percentage of GDP that represents stock market value is as follows a ratio < 50 represent that market is significantly undervalued; Ratio between 50%-75% mostly Undervalued, Ratio between 75%-90% fairly valued and Ratio above 90% is overvalued.
India’s current Market cap to GDP stands at 87% which is at the highest level in last five years. India’s current Market cap to GDP ratio at 87% shows that the market is Fairly Valued. We believe that short term investors should remain cautious and for the long term investors it is good time for SIP.