Wednesday, October 21, 2009

Total Market Cap above GDP

One of the valuation that measures whether the stock market in general is undervalued or overvalued is the ratio of total market cap of all the listed companies to GDP. According to economic survey 2008-09, GDP at current market prices was INR 53,21,753 Crore in FY2008-09. According to the BSE, the total market capitalization of all the listed entities was at INR 58,46,175 Crore on Oct 20, 2009. I am not able to get the data for the FY2009-10, but as far as I can remember, the GDP this year will be somewhere around INR 60,00,000 Crore. This makes the current market cap to GDP ratio at 100%. This is much lower than the ratio of 170% reached at the time Sensex was at 21200 in January 2008 when total market cap was INR 80,00,000 Crore and the GDP in 2007-08 was INR 47,23,400 Crore. At the bottom when Sensex reached 8K in March 2009, the total market cap was around INR 30,00,000 Crore, while market cap to GDP ratio at around 56%.

This is despite the fact that many sectors are still not having a single big company listed. This includes Insurance, Restaurants, Advertising, Railways, and many more. Conclusion? The undervaluation of equities is gone.
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