Strong Finish To The Week; Metal & Pharma Stocks Gain

Indian share markets finished the trading session on a strong note amid firm Asian markets after comments from a Federal Reserve official eased worries about faster rate hikes in US. At the closing bell, the BSE Sensex closed higher by 323 points and the NSE Nifty finished higher by 108 points. The S&P BSE Mid Cap finished up by 1.5% while S&P BSE Small Cap finished up by 1.3%.

Gains were largely seen in metal stocks, pharma stocks and power stocks.

Asian stock markets finished higher today with shares in Hong Kong leading the region. The Hang Seng is up 0.98% while Japan’s Nikkei 225 is up 0.72% and China’s Shanghai Composite is up 0.63%. European markets are mixed. The DAX is higher by 0.12%, while the FTSE 100 is leading the CAC 40 lower. They are down 0.22% and 0.02% respectively.

Rupee was trading at Rs 64.82 against the US$ in the afternoon session. Oil prices were trading at US$ 62.49 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.

PSU bank stocks finished on a strong note with Central bank of India share price and IDBI Bank share price leading the gains.