India Market Capitalization: % of GDP, 1993 2024

GuruFocus modified this measurement by adding the total asset of Federal Reserve Banks in the denominator, arriving at another indicator for market valuation. As of today, the Total Market Index is about 169.4% of the summation of last reported GDP and Total Assets of Fed. The US stock market is positioned for an average annualized return of -0.3%, estimated from the historical market valuation of the newly developed indicator. The modified methodology of this indicator is explained in the Modified Version of Market Valuations section below.

More Indicators for India

The Fed’s assets consist primarily of government securities and the loans it extends to its regional banks. In March 2020, the Indian stock market seemed to be closer to the bottom of current correction phase. After the steepest correction of almost 30% (YTD), India’s Market Cap to GDP ratio is at its lowest since FY2010, leading to unprecedented collapse in market valuations in bear markets. The Actual Return line indicates the actual, annualized return of the India stock market over eight years.

We can see that, during the past five decades, the TMC/GNP ratio has varied within a very wide range. Based on current value and historical month-end values, the lowest point was about 32.7% in the previous deep recession in July 1982, while the highest point was about 209.2% in December 2024. The market went from Significantly undervalued in July 1982 to Significantly overvalued in December 2024. The brokerage further added that domestically the risk-reward seems more favourable for large-caps compared with small- and mid-caps. However, the key risks are excessive liquidity tightening both globally as well as domestically. Other risks include escalating geopolitical tensions and domestic election risks.

Navigating ascent and turbulence: India’s stock market story

The current mcap-to-GDP ratio of 140.2% is just slightly below the all-time high of 149.4% recorded at the end of December 2007. At that time, the total mcap of BSE-listed companies was US$ 850 billion (Rs. 71.7 trillion), while India’s GDP was US$ 574 billion (Rs. 48 trillion) over the previous four quarters. To understand the underlying logic of the Buffett Indicator — the ratio of total market cap (TMC) to GNP, we must understand the economic cycle. The premise is that an economy is mainly driven by consumption and individuals must produce to consume. Corporations generate revenue and profits from the consumption and the profitability will ultimately be reflected in the stock market. Thus, GDP, which reflects the total value of production, is an underlying driving force for the corporate profits as well as the total market cap.

In the current Equity market outlook, India’s Market Cap to GDP ratio jumped 104, at 20-year high as on March 18, 2021. India Market Capitalization accounted for 123.3 % of its Nominal GDP in Dec 2023, compared with a percentage of 104.8 % in the previous year See the table below for more data. If you decline, your information won’t be tracked when you visit this website. A single cookie will be used in your browser to remember your preference not to be tracked. As soon as this statistic is updated, you will immediately be notified via e-mail.

Collective investment schemes

For decades, the Fed balance sheet has been used to predict changes in economic cycles. The expansion and contraction of the Fed’s balance sheet can certainly influence the economy and the consumption of individuals and corporates, which consequently influence the stock market. Generally speaking, the Fed buys assets as a part of its monetary policy whenever it intends to increase the money supply and sells assets when it intends to decrease the money supply. If the Fed’s goal is expansionary, it pours more money into the market and drifts down the interest rate.

Analysts say this is not alarming and the trend needs to be observed over a longer time period

1. The Predicted Return line indicates the expected, or predicted annualized return for the next eight years if the current TMC / GDP ratio reverts to its recent 10 years mean of 92.47%.
2. At that time, the total mcap of BSE-listed companies was US$ 850 billion (Rs. 71.7 trillion), while India’s GDP was US$ 574 billion (Rs. 48 trillion) over the previous four quarters.
3. On the other hand, Abhishek Basumallick, Chief Equity Advisor, Intelsense Capital said, “Market cap to GDP is a metric which needs to be observed over longer timeframes.
4. We can see that, during the past five decades, the TMC/GNP ratio has varied within a very wide range.
5. Based on the newly introduced total market cap over GDP plus Total Assets of Central Bank ratio, the Stock Market is Modestly Overvalued.

In this case, market cap to gdp ratio india money can be borrowed at a lower rate, which drives individuals to consume and corporate to expand their business. On the other hand, an enormous drop in interest rates also promotes investment, as it makes a dollar of future profit much more valuable. Both results may lead to an inflow into the stock market, thus increasing the total market cap.