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Sunday, May 22, 2011

Are Indian Capital Markets Overbought?

The ratio which is used to find whether Capital markets are overbought or not, is the Market Cap-to-GDP ratio.
To calculate this we divide overall Market Cap of all listed securities on two major bourses of India, NSE and the BSE by India's GDP
So on 20/5/2011, that was the last trading day of this week,  total Market Capitalization of BSE and NSE were 65,94,661 and 64,42,007 crores Rs. respectively.
So adding this, we get overall Market Capitalization ( of all listed securities of India ) as 1,30,36,668 crore Rupees.
As latest figures of GDP are not available, considering 8 % of CAGR growth, we extrapolate 2009 figure of the GDP.
So 1.38 trillion US dollar when incremented by CAGR of 8%, gives the present GDP figure of 1.68 trillion US dollar.
Current USD-INR exchange rate of 45.03 gives the latest GDP figure in Indian Rs. as 75,65,040 crore Rs.
Thus overall market capitalization comes to 172 % of India's GDP.
And this indicates Indian markets are in overbought situation and further rise seems difficult to take place.
As per a brokers report published in leading financial news papers, market capitalization came 132 percent of Indian GDP.
This is quite puzzling as the broking house neither shared figure's used nor thrown any light on the modus-operendi of calculation.

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