MCap to GDP Ratio

The Market Cap to GDP ratio is used sometimes as an indicator to check the valuations of the markets.

In the Indian context, (using BSE valuations) this ratio really took off  after 2002-03.(source:SEBI)

Is this indicator any good?

In 2000, according to statistics at the World Bank the market cap to GDP ratio for the U.S. was 153%. Subsequently, the dot com bubble burst.

However, in 2003, the ratio was around 130%, but the market rally continued over the next few years.( see here)

So maybe it is useful but not completely reliable.
To misquote/change of an old joke of Ben Graham:
“The correct attitude of the investor toward the MarketCap to GDP ratio might well be that of a man toward his wife. He shouldn’t pay too much attention to what the lady says, but he can’t afford to ignore it entirely !!”


Guest Post @ The Reformed Broker

Joshua Brown of The Reformed Broker has published my guest post “10 things you need to know about India’s Stock Market

TRB is one of the most popular financial blogs in the US and it is a great honor and privilege to have published there.

Josh has written a book “Backstage Wall Street”  which gives us an insider account of the shenanigans that happen in Wall Street.An excerpt of the book can be read here

Linkfest: April 09, 2012

Some stuff I am reading this morning:

India’s tax plan troubles foreign investors (Nytimes)

India’s Food Security Bill to increase fiscal deficit by 1.2 Trillion Rupees (Mint)

Goa Grand Hyatt in green trouble (BusinessStandard)

Was Madhu Kannan a failure at BSE? (SuchetaDalal)

Can fortune tellers predict stock price movements? (BusinessToday)

Ghosts in the Newsroom:Washington Post’s business strategy (VanityFair)

A devastating critique of Vijay Mallya (Kaipullai)

The best and worst sectors of 2011-2012

As the Indian fiscal year has come to an end (April 2011-March 2012), its time to take stock of sector performance over the last one year.

The best performing sector has been Cigarettes :

1.ITC (Up 24%)

2.Godfry Philips (Up 66%)

3.VST Industries (Up 129%)

The worst performing sector has been Telecom Tower infrastructure:

1.GTL Infra (-74%)

2.Sujana Tower (-70%)

3.TN Tele (-55%)

A mega trend

The Dept of Economic and Social Affairs, United Nations has prepared a great study on  world urban populations (see here)

Increasing urbanization is a huge mega trend with huge implications for all of us (especially Indians).

The chart below shows the projected increase in urban populations in India till 2050

If these projections come to pass, then our Indian cities will add around 500 million people to the existing urban populations in the next 40 years !

Considering our choking infrastructure, water scarcity, high food inflation,pathetic sewage systems- a doubling of urban populations can lead to severe social and economic stress.

On the other hand, increasing urbanization can also lead to investment opportunities especially in real estate and agro commodities.