InvestorQ : I have been hearing that India’s Buffett ratio is getting overpriced, do you agree with that?
prachi Patwardhan made post

I have been hearing that India’s Buffett ratio is getting overpriced, do you agree with that?

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sara Kunju answered.
4 months ago
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The Buffett ratio is nothing but the ratio of the market cap of the stock market to the GDP or the Gross National Income of the Economy. Normally, a Buffett ratio of above 130-140% is considered to be overpriced territory. While India’s Buffett ratio at 104% is still well below that mark, there are some concerns that it is well above the long term average of the Buffett ratio. Historically, the Buffett ratio for India has been closer to 79%, so at 104%, it is substantially above the historical median and that could be a reason for concern.

In the current fiscal year, the GDP is expected to recover sharply from the lows of the pandemic. However, the concern in the market is that the market valuations have overshot the best case GDP growth of the Indian economy. For example, the MSCI India is trading at 20X P/E against historical average of 15X P/E ratio. One argument is that the high market cap shows a plethora of IPOs that have come and the potential for strategic sale.

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