What does market cap-to-GDP ratio tell about market valuation?

India's current market cap of all listed stocks is around $2.3 trillion while the real GDP is $2.6 trillion.

If you were to read analyst reports on market valuations, the most common measure is market P/E. Undervaluation and overvaluation does work quite well at a market level. For example, if you have bought into the markets in 2003 or in 2009 when the P/E ratio was closer to 12, you would have surely made a lot of money. Similarly, if you had sold out at P/E ratios of above 25 in 2007 and 2010, you would have managed to buy back into the market at lower levels. But there is a problem with this measure. It only considers the