India's market cap-to-GDP now below long-term average of 76%: Report

India’s market cap-to-GDP — a ratio used to determine how over, or under-valued a market is — is now at 70 per cent, based on FY20 GDP estimates, and below its long-term average of 76 per cent, a report by Motilal Oswal Financial Services observed. 

This is the lowest in the last four years. The ratio was the highest, at 95 per cent, in FY10. 

Valuations of Indian equities are now below their long-period averages. The Nifty trades at a 12-month forward price to earnings multiple of 16.8 times, at a 7 per cent discount to its long-period average of 18.1 times, according to the brokerage. The Nifty’s price-to-book ratio is at 2.5 times, below its historical average of 2.6 times. However, India’s valuation continues to be at a premium to emerging market (EM) peers. The MSCI India’s P/E trades at a premium of 62 per cent to MSCI EM’s P/E, above its historical average premium of 52 per cent.

Over the last 12 months, MSCI India has remained flat, while MSCI EM has slid 1.5 per cent. The world’s market cap in this period has risen 3.3 per cent to $2.5 trillion, while India’s market cap remained flat at 2.5 per cent, its historical average.