Buffett Indicator labels Indian market as ’modestly overvalued’; projects 5.8% annual returns, lowest among EM peers

Buffett Indicator forecasts annual returns worldwide, with India's stock market labeled 'modestly overvalued'. The m-cap to GDP ratio for India stands at 102.75%, deviating from the 10-year average of 91.49%.

Pranati Deva
Updated19 Jun 2024, 01:15 PM IST
Warren Buffett. (Photo: AP)
Warren Buffett. (Photo: AP)

The Indian market swiftly recovered from the shock of the Lok Sabha elections 2024 results, bouncing back to not only recoup all losses but also surge over 4 percent in June, marking the fourth positive month of the year. Before a slight dip of 0.3 percent in May, the market had seen three consecutive months of gains.

Nifty, in particular, has been on a bullish trajectory, hitting seven new highs in June alone with potential for more gains in the remaining trading days. Throughout 2024, the index has achieved record highs on 33 occasions.

After the initial volatility after the June 4 election results, which saw the index dip to 21,281 points, it rebounded impressively by 10.70% over the next nine sessions. This recovery underscores the market's resilience and investor confidence amidst unexpected political outcomes.

Also Read | Investors fear long stretch of calm in markets can’t last

Given the current high valuations, investors are seeking guidance on their next moves in the market.

When it comes to stock market advice, who better to turn to than Warren Buffett? The pressing question for Indian investors is whether the market will continue to scale new heights and increase wealth, or if a downturn is imminent. One reliable metric to gauge the overall market scenario is the Buffett Indicator. Let's see what it has to say for the Indian market.

But first, let's understand what a Buffett Indicator is.

The Buffett Indicator, also known as the Warren Buffett Indicator, is a measure used to evaluate the overall valuation of the stock market relative to the country's GDP (Gross Domestic Product). It is calculated by dividing the total market capitalisation of all publicly traded stocks in a country by that country's GDP. Warren Buffett has suggested that this ratio can provide insight into whether the market is overvalued, undervalued, or fairly valued compared to historical norms. A high ratio may indicate that the market is overvalued, while a low ratio may suggest undervaluation.

Also Read | Buffett’s investing mantras reignite as equity MF inflows soar to ₹34,697 cr

For India, the Buffett Indicator shows 'modestly overvalued'

India's m-cap to GDP ratio currently stands at 1.02, or 102.75 percent, as of June 18. This is higher than the 10-year average of 0.91 or 91.49 percent. That’s a considerable deviation from the trend but not the highest level this indicator has touched in India in 10 years. The recent 10-year maximum m-cap to GDP ratio stands at 1.19 or 119.68 percent while the minimum 10-year m-cap to GDP ratio is 0.58 or 58 percent.

According to the Buffett Indicator, projecting a return to the recent 10-year mean ratio of 91.49 percent over the next 8 years suggests a potential annual return contribution of -1.44 percent.

Overall, the m-cap to GDP ratio touched an all-time high of 1.464 in 2007, before falling under 1 in 2008.

Expected annual returns

According to the Buffett Indicator, the projected future annual return for the stock market is 5.8 percent, marking it as the lowest among emerging markets. Russia is expected to lead with the highest return at 27.1 percent, followed by Egypt at 21.2 percent, Turkey at 20.1 percent, Pakistan at 18.2 percent, Brazil at 13.6 percent, Indonesia at 13 percent, China at 10.2 percent, Mexico at 9.2 percent, and South Africa at 5.8 percent.

Meanwhile, among developed nations, Singapore leads with the highest expected annual return of 14.4 percent. Following closely are Spain, Australia, the UK, and Hong Kong, each projecting returns of over 8 percent. On the other hand, Japan is anticipated to have a negative annual return of 3.6 percent, making it an outlier in this group. According to the Buffett Indicator, the United States is expected to see a modest 0 percent annual return. These projections provide insights into the varying expected performances of developed economies based on the Buffett Indicator's assessment.

Furthermore, the Buffett Indicator assessment using the newly introduced ratio of total market capitalisation over GDP plus Total Assets of the Central Bank also indicates that the Indian stock market is currently considered 'modestly overvalued'.

Over the past decade, this ratio has fluctuated significantly, reaching a peak of 101.79 percent and a low of 51.53 percent. As of the latest measurement, the ratio stands at 92.94 percent, suggesting that the combined value of the stock market and central bank assets exceeds the country's GDP by a modest margin. This evaluation provides valuable insight for investors and analysts in assessing market valuation relative to economic fundamentals, guiding strategic investment decisions accordingly.


Under the original Buffett Indicator, India's stock market is forecasted to yield 5.8 percent annually in the coming years. This projection factors in economic growth contributing 7.19 percent, a 0 percent dividend yield, and a valuation reversion to the mean of -1.44 percent.

It is important to note that these projections highlight the comparative expected returns of India's stock market relative to other global markets under the Buffett Indicator model.

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First Published:19 Jun 2024, 01:15 PM IST
HomeMarketsStock MarketsBuffett Indicator labels Indian market as ’modestly overvalued’; projects 5.8% annual returns, lowest among EM peers

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