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Mutual Fund Ratios – Market Cap to GDP Ratio by Mirae Asset Knowledge Academy Market Cap to GDP is a long-term valuation indicator that has become popular in recent years, thanks to Warren Buffett. Back in 2001 he remarked in a Fortune Magazine interview that "it is probably the best single measure of where valuations stand at any given moment."

Market Cap to GDP Ratio Definition: A ratio used to determine whether an overall market is undervalued or overvalued.

Market Cap to GDP = (Market Capitalization of the Country/GDP of the Country)*100 Significance 

The result of this calculation is the percentage of GDP that represents stock market value. Typically, a result of greater than 100% is said to show that the market is overvalued, while a value of around 50%, is said to show undervaluation. It’s a logical conclusion that the economic output of a country and the earnings of its companies, and so their valuation, should bear some relationship to the attraction of investing or not investing.

Ratio = Total Market Cap / GDP

Valuation

Ratio < 50%

Significantly Undervalued

50% < Ratio < 75%

Modestly Undervalued

75% < Ratio < 90%

Fair Valued

90% < Ratio < 115%

Modestly Overvalued

Ratio > 115%

Significantly Overvalued


BSE market capitalization to GDP

( in %)

112.13 100.93 89.14

89.67

94.35 74.06

10 â&#x20AC;&#x201C; Year Average 78.17

80.14 68.04

70.36

FY13

FY14 22 May' 14

58.19

57.16 45.81

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

Source: Bloomberg, BSE, CMIE.*based on FY14 GDP data The debate on whether there is any relevance to the market capitalization to gross domestic product or GDP ratio rages on, however we feel it is an important tool to gauge the overall attractiveness of stock market in any country.

Mutual fund investments are subject to market risks, read all scheme related documents carefully.

Understanding the Term "Market Cap to GDP Ratio" and its Significance  

Market Cap to GDP Ratio is a long term valuation indicator that is used to determine whether an overall market is undervalued or overvalued....

Understanding the Term "Market Cap to GDP Ratio" and its Significance  

Market Cap to GDP Ratio is a long term valuation indicator that is used to determine whether an overall market is undervalued or overvalued....

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