Chart of the Day: Here is an interesting Nifty Vs GDP trend

Lots of comparison has been done with the highs that the markets scaled in 2008 and how they currently stand. P/E in first week of January 2008 was 28 times and price-to-book was 6.5 times while as on October 30, 2013 P/E 18 times and price to book 2.9 times. When you hear economy back to 7-8 percent growth, your P/E multiple can be 25-28 times by then and then the Sensex could scale the elusive 25000 plus levels.

A brief check GDP growth and their correlation (lack of it) with the Nifty in the past 22 quarters.

Nifty saw the second biggest slide in January-March 2008 when GDP was at the higher end of 8.6 percent, while the biggest slide was seen in December 2008 when GDP was a mere 5.8 percent. Interestingly, when the GDP was at a similar level of 5.7 percent, Nifty saw the biggest jump in Apri-June 2009 quarter. Though this quarter was backed by the UPA-II coming back to the forefront. But there was a follow-up run of 18 percent in the next quarter (July-September 2009) when GDP rose to 9 percent representing a 'rare strong correlation' with the Nifty.  When the GDP in the past 22 months was at a sky high 11.2 percent the Nifty moved just 1 percent.

Currently, we are at the lower end of the GDP band and are awaiting Q2FY14 GDP figure and though in July-September quarter Nifty is flattish, Q3FY14 GDP will be interesting as the Nifty is already up 10 percent in this quarter.

Click on attachment for a detailed chart on Nifty Vs GDP trend...

Graphics: Riken Mehta

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