Indian share markets finished the trading session on a strong note amid firm Asian markets after comments from a Federal Reserve official eased worries about faster rate hikes in US.
At the closing bell, the BSE Sensex closed higher by 304 points and the NSE Nifty finished higher by 92 points. The S&P BSE Mid Cap finished up by 0.7% while S&P BSE Small Cap finished up by 0.9%.
Gains were largely seen in realty stocks, auto stocks and capital goods stocks.
Asian stock markets finished broadly higher today with shares in China leading the region. The Shanghai Composite is up 1.23% while Japan’s Nikkei 225 is up 1.19% and Hong Kong’s Hang Seng is up 0.74%. European markets are higher today with shares in France leading the region. The CAC 40 is up 0.49% while Germany’s DAX is up 0.47% and London’s FTSE 100 is up 0.24%.
Rupee was trading at Rs 64.66 against the US$ in the afternoon session. Oil prices were trading at US$ 63.51 at the time of writing.
The Market cap to GDP ratio for Indian companies too is close to dangerously high levels. While this is still some way off the peak of FY-08, when it had once reached close to 150, it’s relatively high.
FY17 saw this ratio reach close to 80. It is also expected to increase further given the moderate growth expectations in India’s GDP for FY18. Warren Buffett once considered this as one of the best valuation metrics to gauge the markets.
Past history shows some correlation between the ratio and the share market. 2008 saw Sensex decline by 38%, when this ratio crossed the 100 mark. Also, the market has bounced back sharply when this ratio was low.
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The basic assumption in this ratio is that whenever the GDP of the country grows, the market performance will reflect it. Also, when stocks do well, it can be extrapolated to assume the Indian economy is doing well.
