The market cap to GDP ratio fell to a 10-year low

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New delhi date. Thursday, June 25, 2020

The market cap-to-GDP ratio of the stock market is currently at a 10-year low, the level of the 2008-09 global financial downturn. Through this ratio the overall market is undervalued or overvalued.

At present, the market cap-to-GDP ratio has come down from 9 per cent in FY18 to 5 per cent in FY2030, which is much lower than the long-term average of 5 per cent.

This ratio is also known as the Warren Buffett indicator. Which displays the value of all stocks against the total production of the country. If this ratio is above 100 per cent, it indicates market overvalue and if it is around 50 per cent, it indicates undervalue situation.

It may be mentioned here that the market cap to GDP ratio was at 8% in the last two decades before the financial year 2007. During the bull run from 2007 to 2008, it rose to a high of 12 per cent in December 2009.

Current Russian data shows that the Indian stock market is trading lower. However, some market experts believe that this ratio does not present a true picture of the economy. Currently the market cap to GDP ratio has declined but it has declined modestly. The country has now announced massive reliefs in the lockdown. Therefore, it will increase in the near future. It is worth mentioning here that during the year 2017, a large number of private equity investments were seen in Indian companies. According to available data, the total investment in the corporate sector during the reported period was 4 billion. Which was 8.13% in the year 2016.

According to market experts, Corona has survived the epidemic. Later, India will see record growth on all fronts in the corporate sector. The increasing use of digitization is a welcome development.


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