SUBSCRIBE NEWSLETTER
  • Change Language
  • English
  • Hindi
  • Marathi
  • Gujarati
  • Punjabi
  • Tamil
  • Telugu
  • Bengali
  • Tutorials Mutual Fund Ratios – Market Cap to GDP

    Mutual Fund Ratios – Market Cap to GDP

    Mirae Asset Knowledge Academy Jun 18, 2014

    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


     

    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.

    open my wife cheated on me with my father catch a cheater
    what is medical abortion abortion support mifeprex abortion pill
    Have a query or a doubt?
    Need a clarification or more information on an issue?
    Cafemutual welcomes all mutual fund and insurance related questions. So write in to us at newsdesk@cafemutual.com

    Click to clap
    Disclaimer: Cafemutual is an industry platform of mutual fund professionals. Our visitors are requested to maintain the decorum of the platform when expressing their thoughts and commenting on articles. Viewers are advised to refrain from making defamatory allegations against individuals. Those making abusive language or defamatory allegations will be blocked from accessing the web site.
    0 Comment
    Be the first to comment.
    Login or Sign up to post comments.
    More than 2,07,000 of your industry peers are staying on top of their game by receiving daily tips, ideas and articles on growth strategies. Join them and stay updated by subscribing to Cafemutual newsletters.

    Fill in the below details or write to newsdesk@cafemutual.com and subscribe to Cafemutual Newsletter now.