Strong Start To The Week; Tata Steel Gains

Indian share markets continued to flourish in today’s session. At the closing bell, the BSE Sensex closed higher by 295 points and the NSE Nifty finished higher by 85 points. The S&P BSE Mid Cap finished up by 1.3% while S&P BSE Small Cap finished up by 1.6%.

Gains were largely seen in realty stocks, capital goods’ stocks and power stocks.

Asian stock markets finished mixed as of the most recent closing prices. The Shanghai Composite gained 0.78%, while the Nikkei 225 & the Hang Seng fell 2.32% and 0.03% respectively. European markets are sharply higher today with shares in Germany leading the region. The DAX is up 2.05% while France’s CAC 40 is up 1.64% and London’s FTSE 100 is up 1.45%.

Rupee was trading at Rs 64.28 against the US$ in the afternoon session. Oil prices were trading at US$ 60.55 at the time of writing.

The Market cap to GDP ratio for Indian companies too is close to dangerously high levels. While this is still some way off the peak of FY-08, when it had once reached close to 150, it’s relatively high.

FY17 saw this ratio reach close to 80. It is also expected to increase further given the moderate growth expectations in India’s GDP for FY18. Warren Buffett once considered this as one of the best valuation metrics to gauge the markets.

Past history shows some correlation between the ratio and the share market. 2008 saw Sensex decline by 38%, when this ratio crossed the 100 mark. Also, the market has bounced back sharply when this ratio was low.

The Warren Buffett Indicator Suggests Indian Equity Market Is Overvalued

The basic assumption in this ratio is that whenever the GDP of the country grows, the market performance will reflect it. Also, when stocks do well, it can be extrapolated to assume the Indian economy is doing well.

Tata steel share price continued to gather momentum and finished up by 4.2% after the company said its third-quarter earnings jumped more than fivefold, replenishing the company’s coffers as it plans to double production capacity in India. The company’s profit rose to Rs 12.9 billion for the three months through December, from Rs 2.43 billion a year earlier.