Buffett Indicator: Indian markets heading for a tailspin?
The data showed that India's GDP grew 7.6% in FY16.
Are we moving towards major market cash? Is the rising Gross Domestic Product (GDP) nothing but just a bubble?
Today's market crash where BSE benchmark Sensex closed down 300 points and NSE led Nifty plunged 80 points raised these questions and highlighted the term 'Buffett indicator'. For experts, this term is not new.
But, if you are a long-term investor, then you should know about this term.
'Buffett Indicator' which is the most important indicator of the stock market valuation, indicate that our equity markets are soon going to face a downturn, as reported by Economic Times (ET).
What is Warren Buffett Indicator?
According to NASDAQ, Buffett Indicator is the ratio of total market cap over Gross National Product (GNP). Term suggested by billionaire Warren Buffett, the indicator is the percentage of total market cap (TMC) relative to the US GNP is the single measure of where valuations stand at any given moment.
The indicator tells the "mismatch" between the growth rate in the country's economy and of the equity market.
The recent GDP data of the country has raised several doubts on its accuracy. The data showed that India's GDP grew 7.6% in FY16.
As per the ET report, India's market capitalisation- to- GDP ratio stands at 83% which is far above than the 10 year average of 76%. Interestingly, this market cap has been visible since FY2015.
Why Buffett Indicator shows threat?
According to the ET report, in 2014, the GDP, as per constant prices in 2004-05, stood at Rs 57.29 lakh crore. As per the old series calculation, from there on, assuming GDP grew at 7.3% and 7.6%, GDP should stand at Rs 66.2 lakh crore in 2016. But, as per the new series, it is 113.40 lakh crore, which is 151% higher and by FY16 end it may touch 143%.
Is this sudden rise a cause of worry?
Get Latest Business News, Stock Market Updates and Videos; Check your tax outgo through Income Tax Calculator and save money through our Personal Finance coverage. Check Business Breaking News Live on Zee Business Twitter and Facebook. Subscribe on YouTube.
RECOMMENDED STORIES
PM Modi has invested in this post office scheme; know his total worth as per Lok Sabha elections 2024 affidavit
SRH vs GT IPL 2024 Ticket Booking Online: Where and how to buy SRH vs GT tickets online - Check IPL Match 66 ticket price, other details
Top 7 SWP Mutual Funds: Rs 50 lakh investment, Rs 70K monthly pension for 10 years, and Rs 42.30 lakh balance value; know more details
Gold and Silver rate today (May 13, 2024): Precious metal under pressure; yellow metal near Rs 72,400, white metal above Rs 84,600
SIP Returns: How Rs 3,000, 5,000, and Rs 10,000 SIPs can help you build retirement corpus of Rs 1.06 cr, Rs 1.77 cr, and Rs 3.53 cr
TBO Tek IPO Listing LIVE Update: Bumper Debut! Share list at 55% premium - Buy, sell or hold? Check Anil Singhvi's view
06:43 PM IST