Tuesday, 10 June 2014

A look at Indian P/E and Market Cap Ratio

When an engineer has to judge an engine, he opens the hood. Uses various instruments, methods, takes measurements, draws graphs, studies it all, to understand the engine's status.

And if the history of this engine's performance is available, even better.

The equity markets are no different. You need to open the financial and policy engine of a company, or a sector, or an industry, and take measurements to understand its current status.

Firstly the Warren Buffet Ratio, or the Market Capitalisation to GDP ratio:

This ratio is now far below what it was in 2007, just before the crash.

Next, Indian P/E. This too is low as compared to previous years.

1994 TO 2014

2004 TO 2014

2009 TO 2014

Quote, the Economic times,26 Mar, 2014:

Global fund managers which are sitting in the US and Europe are pulling money out of China, Korea, Russia and Japan, and betting some of it on India and Indonesia.

Further Reading:

1. Buffet wary if GDP to MCap goes over 100%

2. Secondthoughts...

3. More thoughts...

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