RBI hints at disconnect between economy and equity rally

While the retail holding in NSE listed companies had risen between December 2019 and September this year, their holding in equity mutual funds had seen a decline, the report observed.

The RBI's financial stability report has on Wednesday highlighted the disconnect between the real economy and equity market yet again.  

The central bank observed that Indian equities were trading at rich valuations, with several metrics such as price to earnings multiples, price to book ratio, market cap to GDP and the cyclically adjusted P/E ratio, or Shiller P/E, at above historical averages. 

For instance, as on December 13, the one-year forward P/E ratio for India was 35.1 per cent, above its 10-year average, and one of the highest in the world. Strong investor interest has driven up P/E ratios substantially,