Understanding The Relationship Between M-Cap And GDP Ratio

Subscribe to GoodReturns
For Quick Alerts
Subscribe Now  
For Quick Alerts
ALLOW NOTIFICATIONS  
For Daily Alerts

    Market Capitalization when we talk about is generally per se in relation to company with stocks floated in the public for public subscription and equals the prevailing market price multiplied by the number of shares. GDP on the other hand is the gross domestic product and is representative of growth. But when the combined m-cap of all the listed stocks together is considered and divided by the GDP then it plays a crucial ratio to study the standing of the stock market.

    Understanding The Relationship Between M-Cap And GDP Ratio

    The lower ratio indicates that the market is still not overly priced or is in the range of heavy valuations and viceversa.

    The ratio gained in popularity as the investment Guru Buffet promoted it and the simple relevance put forth explaining its usefulness is that the price for a stock other than the macro-economic factor also is attained keeping in view the company's earnings estimates and GDP that gives overall earnings figure of a country shows whether the company's growth is in line with the economy as a whole or not.

    M-Cap and GDP ratio over 100% is indicative of high valuations and require cautious approach while that ranging below 50% suggest undervaluation.

    In the Indian context, our major bourses are not truly representative of all the sectors of the economy and hence the figures can not be taken in isolation and can show some variance from the actual. During the 2008 crisis, the market cap to GDP ratio in India peaked above the 100% level.

    Goodreturns.in

    Company Search
    Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'

    Find IFSC

    Get Latest News alerts from Goodreturns

    We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Goodreturns sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Goodreturns website. However, you can change your cookie settings at any time. Learn more