InvestorQ : Does the Market Cap / GDP ratio work out to be a good deal?
Nikita Damle made post

Does the Market Cap / GDP ratio work out to be a good deal?

Mahima Roy answered.
3 years ago

This macro level ratio is rarely used but is an extremely useful ratio when comparing the relative attractiveness of one country with another. Take the case of India. The market cap to GDP ratio is at just about 75%. This is far lower than other countries like the US, UK and Japan where the market cap / GDP ratio is well above 100%. In fact, China too was above 1 before the vicious correction set into the equity markets. Normally a ratio of below 80% for a matured market is a classic sign of an underpriced market, especially when high growth advantage still exists. The understanding of lesser known analytical variables must not be missed out. These ratios are not used very popularly by analysts and fund managers as they are supposed to have limitations. The fact is that despite limitations, these ratios offer very critical insights into the market. Unlike a lot of other ratios, these ratios rarely mislead and manage to give fairly precise insights into the market. Go ahead, and make the best of these ratios!