Zerodha co-founder explains – How pricey is the Indian stock market?


The Nifty and Sensex have plummeted more than 10% in 2022 and are presently at their weakest levels. Currently trading at 15,699, the Nifty 50 is 3.39 per cent away from its 52-week low of 15,183. The Nifty 50 index is down almost 15% from its most recent high level of 18000 as of April 2022 and roughly 17% from all-time high levels. Indian markets are responding to global cues such as supply chain instability caused by the Russia-Ukrainian war, record-high inflation, increasing interest rates, weakening rupee, rising crude oil prices, rising bond yields, and ongoing selling of equity by foreign investors portfolio (FPIs). Nikhil Kamath, the co-founder of Zerodha and True Beacon, highlighted how the Nifty 50 is the most expensive index when compared to the international markets in light of the current market conditions.

“India may be many things, one thing we still aren’t cheap relative to historical price multiples,” Kamath has said in a Tweet.

How is the domestic market one of the world’s cheap market stock markets based on PE ratios?

Based on the indicator shown by Kamath, currently Nifty 50 holds a price-to-equity or P/E ratio of 19.9 which is the lowest in the last 2 years. The chart, however, demonstrates that India has one of the most expensive stock markets in the world, with the Nifty trading at a PE multiple of 19.9, higher than the S&P 500’s P/E of 18.95, Nikkei 225 at P/E of 18.79 , FTSE 100 at a P/E of 16.15, SSE at a P/E of 13.26, DAX at a P/E of 11.73, Bovespa at a P/E of 5.58, and MOEX at a P/E of 3.96 lowest in the chart.

As per the data of Trendlyne, at 19.9, the Nifty PE ratio is still slightly peak below both the 5-year 42 multiples and the 5-year average of 27.46. The Nifty PE ratio is also lower than the 1-year, 2-year, 6-month, 3-month, and 2-year average PE ratios of 24.18, 29.13, 22.01, and 21.05. In the previous year, the Nifty PE ratio ranged between a high of 29.21 and a low of 18.92. The Nifty 50 PE ratio fluctuated during a five-year period from a peak of 42 to a low of 17.15. The fact that the Nifty 50 has a high P/E and is the most expensive in the world suggests that it may be overvalued and that stock prices are comparatively high when compared to the global market.

The Buffet Indicator Market Cap By GDP

The ratio of a country’s overall stock market valuation to its GDP is known as the Buffet Indicator. It is the total market worth of all listed stocks in a nation divided by GDP; the higher the ratio, the more expensive the market is. According to statistics provided by Kamath, the US has a Buffett Indicator score of 138.9% while Japan had a score of 113.03% which are the two most expensive markets in the world.

Based on the Buffet Indicator of domestic market valuation to its GDP, India stood at a ratio of 94.05% much undervalued than the market of Japan and the US but is much overvalued than the UK at a buffet indicator of 89 per cent, Brazil at 53.01 per cent, Germany at 47.42 per cent and China at 58.76 per cent. Following multi-year high GDP forecasts, India’s market capitalization to gross domestic product (GDP) ratio has been erratic, rising from 56% of 2019–20 GDP in March 2020 to 112% in 2021–22. Despite the poor market, the Buffet Indicator of India demonstrates how costly Indian equities are.

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