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Warren Buffett indicator shows caution for Indian markets; Mcap/GDP nears 100

Warren Buffett described the Mcap/GDP ratio as the single best measure of where valuations stand at any given moment.

March 20, 2017 / 03:44 PM IST

After a flattish 2016, no one was expecting Indian market to deliver stellar returns and hit a record high in the first three months of the year 2017.

The rally which got short traders on the wrong foot has also boosted India’s market capitalisation/GDP ratio which now hovers around 100 mark, a valuation indicator which suggests that the market is going into overvalued zone.

Thanks to Market Guru, Warren Buffett, who described this ratio as the best single measure of where valuations stand at any given moment” in a December 2001 article for Fortune magazine -- India's M-cap to GDP ratio stands at 97 percent, according to an IDFC report.

Later on Monday, IDFC clarified that the exact number stands at 77 per cent and not 97 per cent which leaves room for further upside in the market, but investors should tread with caution.