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Take guard! It smells like a bubble: ‘Buffett indicator’ rings alarm bells for D-Street


The 'Buffett indicator' shows something is majorly wrong with the Indian stock market, and we may be on the verge of a major crash. The market cap-to-GDP ratio, more famously called the 'Buffett indicator' as the Oracle of Omaha , Warren Buffett , considers it his 'single best measure' for long-term valuation of stocks, suggests a huge mismatch between the rate of growth in the economy and that of the stock market.
The crucial measure, calculated by dividing the market capitalisation of a country's stock market with the GDP of the economy, is suddenly at a very high level, suggesting either a too high market cap or a too low GDP figure.
India's latest GDP data has kicked off a row, with many experts questioning the accuracy of the measure, which doesn't quite add up at certain levels. That could be one factor that has sent the 'Buffett indicator' haywire, making it impossible to base your valuation judgment on it.
In an interview way back in 2001, Buffett had this to say about his favourite indicator: "It is probably the single-best measure of where valuations stand at any given moment."

As per the latest figures, India's m-cap-to-GDP ratio stands at 83 per cent, way above the 10-year average of 76 per cent. In fact, this has been so for the past two financial years. 

But the above data is true only if you believe in India's GDP number, and in the way it has been calculated. 

India's GDP grew 7.6 per cent during FY2016, making it the fastest growing large economy in the world ahead of China. 

But some, such as the Centre for Monitoring Indian Economy .. 

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