Sensex Trades On A Flat Note; Metal & Realty Stocks Rise

Indian share markets continue to trade on a flat note in the noon session. Gains are largely seen in metal stocks and realty stocks. Meanwhile, bank stocks and energy stocks are witnessing majority of the selling activity.

The BSE Sensex is trading higher by 5 points and the NSE Nifty is trading higher by 9 points. Meanwhile, the BSE Mid Cap index is trading up by 0.2% & the BSE Small Cap index is up by 0.6%. The rupee is trading at 64.16 to the US$.

The Sensex and the Nifty trading at a PE of 25 and 26.9 times respectively. The midcap and smallcap indices are trading at insane valuations at PEs of around 46.4 and 113.8 times. Mid and small caps have never seen such crazy valuations.

There is still another ratio, which is frequently used to evaluate the valuations. The market capitalization to GDP ratio. It is one of Buffett’s favourite indicators of broader market value. The market cap of all the listed companies in the country divided by the gross domestic product (GDP) of the country gives us this ratio.

Market Cap to GDP Ratio Close to 100%

The idea behind this ratio is simple. Stock prices are derived from expected earnings for corporates and GDP represents revenue of the country. This gives investors an estimate of whether the two are moving in tandem. A ratio above 100% shows overvaluation and one below 50% shows that the market may be undervalued.

Even this ratio is showing valuations reaching its peak levels. India’s market cap to GDP ratio reached 95%. This ratio was more than 100% after the 2007 bull run. Stock prices had seen a significant meltdown after that amid the global financial crisis. 2018 will, therefore, be critical for Indian companies to justify their valuations with earnings growth.

Axis Bank share price is presently trading down by 1.2% on the BSE after it was reported that market regulator has directed Axis Bank to conduct an internal inquiry to ascertain how key financial information was leaked on a WhatsApp group before it was officially announced on the stock exchange platform.