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Indian markets are fairly valued
Aug 8, 2014

You'll rarely see Warren Buffett talk about market wide valuations. He simply prefers to invest in individual stocks and buys into them if he thinks they are available at good prices. However, the few times he's focused on the market valuations, he's tended to use an indicator called the market cap to GDP ratio. As per Buffett, this is the single best indicator to see where the market valuations are at any given point in time. A leading daily has taken a leaf out of Buffett's book. It has used the very same indicator to find out where Indian markets stand at the moment.

So, what's the conclusion? Well with India's market cap being 70% of its GDP currently, the market is just about fairly valued as per the indicator. Important to add that the long term average stands at around 72% and when the ratio goes up above 100%, like it did in 2008 when it touched 102%, alarm bells should start ringing. However, there does not seem to be any such concern for the time being and investors looking to invest in say index funds, can still walk away with good returns from a long term perspective we reckon.

Data Source: Economic Times

This Chart Of The Day was published in The 5 Minute WrapUp - The real reason why inflation won't go away

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